What is FX?

The foreign exchange market or FX market, is the largest financial market in the world. It is a decentralized market place that facilitates the buying and selling of various currencies. This takes place over the counter (OTC) via the interbank market instead of on a centralized exchange.

The FX market opens 24 hours a day, five days a week, except for holidays. However, not all countries have the same holidays. Therefore, currencies may still be traded on a holiday, if there is a country/global market that is open for business on that same day.

How does it works?

The FX market is affected by supply and demand. The example below will help you better understand this concept.

E.g.: If there is a strong demand for the US Dollar (USD) from UK citizens holding Pounds (GBP), they will exchange more GBP into USD. The Value of USD will increase while the value of GBP will decrease.

This is because the demand for USD increases, and people are buying USD in exchange for GBP, thus increasing the supply of GBP.

In the FX trading, if you think the value of a currency is going to go up (appreciate), you buy the currency. This is known as going “long”. If you feel the currency is going to go down (depreciate), you sell that currency. This is known as going “short”.