Until only a few years ago, access to trading of foreign currencies was limited to financial institutions like banks and funds. Once this restriction disappeared, retail investors started taking part in this market, but for many it is still a secret. The fact is that this is a very active market and it is open 24 hours every week day. Like any trading, it has a set of systemic risks, but also risks specific to the market of foreign currencies. Investors should get familiar with these intricacies, before they delve into trading.
- A vast majority of trade activity in the forex market occurs between institutional traders, such as people who work for banks, fund managers and multinational corporations.
- All forex trading is expressed as a combination of the two currencies being exchanged. There are seven currency pairs—what are known as the majors— that account for about 75% of trading in the market.
- Similar to stock traders, forex traders are attempting to buy currencies whose values they think will increase relative to other currencies.
“All forex trading is conducted over the counter (OTC), meaning there’s no physical exchange (as there is for stocks) and a global network of banks and other financial institutions oversee the market (instead of a central exchange, like the New York Stock Exchange).”