What is forex trading and how does it work?
Forex trading is the simultaneous act of buying one currency while selling another.
The combination of these two currencies make up what's known as a currency pair. Currencies are always traded in pairs, and each currency in a pair is represented by a unique three-letter code.
The first two letters in the code represent the country, and the third letter identifies the currency, such as the code JPY = Japanese Yen.
Forex prices are known as rates, and they express the value of one currency in terms of the other.
For example, a price or rate in euro-dollar could be quoted as:
- EUR/USD = 1.23700
The currency to the left of the slash is the base currency (in this example, the euro), and the currency on the right-hand side is the quote currency (in this example, the US dollar).
For traders using one of our free MetaTrader platforms, currency currency pairs are displayed on MT4 and MT5 without the slash (/) so you'll see pairs communicated as EURUSD rather than EUR/USD.
Looking at this currency notation above, we can see that 1 unit of the base currency (1 euro) is equal to 1.23700 US dollars, which means to buy 1 euro, you’ll have to pay 1.23700 US dollars.
If you’re selling, the FX rate specifies how many units of the quote currency you get in exchange for one unit of the base currency. In the example above, the rate tells us that you'll receive 1.23700 US dollars when you sell 1 euro.
When should I buy?
A trader will open a buy or long position if they believe that the value of a specific base currency will increase.
When should I sell?
A trader would open a sell or short position if they believe that the value of a specific base currency will decrease.
When can currencies be traded?
The forex market is unique among the world’s financial markets in that it's open for trading 24 hours a day, 5 days a week.
The tables below list both the GMT and EST trading times for the FX markets. Trading sessions are according to GMT (Greenwich Mean Time):
| Region | City | Open (GMT) | Close (GMT) |
|---|---|---|---|
| Europe | London | 8:00 am | 5:00 pm |
| Europe | Frankfurt | 7:00 am | 4:00 pm |
| America | New York | 1:00 pm | 10:00 pm |
| America | Chicago | 2:00 pm | 11:00 pm |
| Asia | Tokyo | midnight | 9:00 am |
| Asia | Hong Kong | 1:00 am | 10:00 am |
| Pacific | Sydney | 10:00 pm | 7:00 am |
| Pacific | Wellington | 10:00 pm | 6:00 am |
Trading sessions according to EST (Eastern Standard Time):
| Region | City | Open (GMT) | Close (GMT) |
|---|---|---|---|
| Europe | London | 3:00 am | 12:00 noon |
| Europe | Frankfurt | 2:00 am | 11:00 am |
| America | New York | 8:00 am | 5:00 pm |
| America | Chicago | 9:00 am | 6:00 pm |
| Asia | Tokyo | 7:00pm | 4:00 am |
| Asia | Hong Kong | 8:00 pm | 5:00 am |
| Pacific | Sydney | 5:00 pm | 2:00 am |
| Pacific | Wellington | 5:00 pm | 1:00 am |
*Trading hours may vary with daylight savings time.
What's next?
Find out more about how to get started with a live trading account.
Want to learn more about forex trading? Start with our top ten trader terms used in trading circles.