Forex Trading Basics: The Forex Market

What is the Forex market? What other names does it have? What is the daily trading volume of this market? What are the opening hours of the market? When did the Forex market start? What is the relationship between the Forex market and the Bretton Woods system?

Basically, the Forex market is where banks, businesses, governments, investors, and traders use to exchange and speculate on currencies. The Forex market, also known as the 'Fx Market', 'Currency Market', 'Forex Money Market' or 'Foreign Currency Market', is the largest and most liquid market in the world, with an average daily trading volume of $3.98 trillion.

The Forex market is open 24 hours a day, five days a week, and the most important world trade centers are located in London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney.

It is worth noting that there is no central exchange in the Forex market; instead, trading is conducted "over the counter"; It doesn't have a central exchange like stocks, where all orders are processed like the New York Stock Exchange. Forex is a product quoted by all major banks, and not all banks have exactly the same prices. Now, broker platforms get all the feeds from different banks and the quotes we see from brokers are an approximate average of them. It is the brokers who effectively place the trades and take the other side...they create the market for you. When you buy a group of currencies...your broker is selling to you, not to "another trader".

An introduction to the history of the Forex market

This section may be a bit boring but it is important to have some basic background knowledge on the history of the Forex market so that you understand why it exists and how it has developed to this day. This is the history of the Forex market in a nutshell:

In 1876, the so-called gold exchange standard was implemented. Essentially all paper currency must be backed by solid gold, with the aim of stabilizing world currencies by tying them to the price of gold. It's a good idea in theory, but in practice it creates prosperity - A depression pattern that ultimately led to the disappearance of the gold standard.

The gold standard was phased out at the start of World War II because major European countries did not have enough gold to back the currency they printed to pay for large military projects. While the gold standard was eventually phased out, precious metals never lost their status as the ultimate form of monetary value.

The world then decided to use fixed exchange rates, resulting in the US dollar becoming the main reserve currency and the only currency backed by gold. This was called the Bretton Woods system, which was established in 1944 (I know you're excited to know this). In 1971, the United States announced that it would no longer convert dollars in its Forex reserves into gold, marking the end of the Bretton Woods system.

It was the collapse of the Bretton Woods system that ultimately led to the acceptance of floating exchange rates in much of the world in 1976. This was effectively the "birth" of the current Forex market, although it was not widely traded electronically until the mid-1990s.

The Forex market is a place where institutions or individuals exchange and invest currencies. It is also called the "foreign currency market", etc. Its daily turnover reaches 3.98 trillion US dollars. It is open every Monday to Friday, 24 hours a day. The gold exchange standard disappeared after its implementation in 1876. Then the U.S. dollar replaced gold as the exchange standard and used fixed exchange rates, which was one of the key points of the Bretton Woods system. After the end of the system, countries around the world began to accept floating exchange rates, marking the birth of the Forex market.