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Learn to Trade Forex

01 - How Does Forex Work?

Typography

How Does Forex Work?

  • Forex trading is the simultaneous buying of one currency and selling of another
  • These two currencies make up what is known as a "currency pair"
  • Currencies are always traded in pairs - each currency is represented by three letters
  • The first two letters represent the country and the third letter identifies the currency
  • Forex pairs are read in the opposite direction of mathematical proportions or ratios

For example:

EUR/USD = 1.23700

  • The currency to the left of the slash ("/") is called the base currency (in this example, the Euro) and the currency on the right is called the quote currency (in this example, the U.S Dollar)
  • This notation means that 1 unit of the base currency (that is, 1 Euro) is equal to 1.23700 U.S Dollars
  • You have to pay 1.23700 U.S Dollars to buy 1 Euro
  • If selling, the foreign currency exchange rate specifies how much units of the quote currency you get for selling one unit of the base currency
  • In the above example, you will receive 1.23700 U.S Dollars when you sell 1 Euro

When to Buy?

A trader would open a buy position if they believe that the value of that specific base currency would increase.

When to Sell?

A trader would open a sell position if they believe that the value of that specific base currency would decrease.

When can Currencies be Traded?

The spot FX market is unique among the world financial markets in that it's open 24 hours a day, 5 days a week. See the below tables for GMT and EST trading times:

Trading sessions according to GMT (Greenwich Mean Time):

Region City Open(GMT) Close(GMT)
Europe London
Frankfurt
8:00 am
7:00 am
5:00 pm
4:00 pm
America New York
Chicago
1:00 pm
2:00 pm
10:00 pm
11:00 pm
Asia Tokyo
Hong Kong
midnight
1:00 am
9:00 am
10:00 am
Pacific Sydney
Wellington
10:00 pm
10:00 pm
7:00 am
6:00 am

Trading sessions according to EST (Eastern Standard Time):

Region City Open(EST) Close(EST)
Europe London
Frankfurt
3:00 am
2:00 am
12:00 noon
11:00 am
America New York
Chicago
8:00 am
9:00 am
5:00 pm
6:00 pm
Asia Tokyo
Hong Kong
7:00pm
8:00 pm
4:00 am
5:00 am
Pacific Sydney
Wellington
5:00 pm
5:00 pm
2:00 am
1:00 am

*Trading hours may vary with daylight savings time.

Pepperstone
Pepperstone is authorised and regulated by the Australian Securities and Investment Commission (ASIC) and the Financial Conduct Authority (FCA). We take pride in our strong culture of regulation and compliance. The security of our client funds is of paramount importance. Pepperstone maintains segregated client accounts with National Australia Bank (Australia) and Barclays (UK).
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