What Is Forex Trading?
Discover the global foreign exchange marketplace, how currencies are exchanged, and why it operates 24 hours a day.
- Define foreign exchange (Forex/FX) and understand its global economic purpose.
- Compare Forex to stock markets in terms of market size, liquidity, and decentralization.
- Understand the 24-hour trading cycle across global time zones.
The foreign exchange market (commonly known as Forex or FX) is the decentralized global marketplace where the world's national currencies are bought and sold. It is the largest financial market in the world, with over $7.5 trillion traded every single day—dwarfing all global stock markets combined.
Why Does the Forex Market Exist?
At its core, the foreign exchange market exists to facilitate international trade and investment. When a multinational corporation in the United States buys machinery from Germany, it must pay in Euros (EUR). The corporation exchanges US Dollars (USD) for Euros on the FX market. Central banks, commercial banks, investment funds, multinational corporations, and retail traders all participate in this ongoing liquidity pool.
A Decentralized, 24-Hour Marketplace
Unlike equities that trade on centralized exchanges like the New York Stock Exchange (NYSE), the Forex market has no physical central headquarters. It is an Over-the-Counter (OTC) market, operating electronically through a global network of banks, financial institutions, and retail brokers.
Trading begins each week in Sydney (Sunday evening US time) and follows the sun across Tokyo, London, and New York, before closing in New York on Friday evening. This allows continuous 24-hour liquidity during weekdays.
Gold moves in an orderly 3-act sequence: 1. Accumulate calm range → 2. Trigger the fakeout trap → 3. Expand in the true trend.
Asian Session (Tokyo)
Price drifts sideways in a quiet, narrow channel ($8 to $14). Large banks accumulate liquidity above and below the highs without showing their hand.
London Open (Europe)
European desks open with high volume. Institutional desks frequently spike price outside the Asian range to trip retail stop-losses before reversing.
New York Overlap (Wall St.)
Both London and Wall Street are trading together. US economic news (CPI, NFP) releases. Maximum volume drives the cleanest 200–350 pip trend expansions.
Imagine you travel from London to New York. At the airport exchange counter, you exchange 1,000 British Pounds (GBP) for US Dollars (USD) at an exchange rate of 1.3000. You receive $1,300 USD.
During your two-week stay, you don't spend any money. When you return to the counter, the exchange rate has moved to 1.2500 (meaning the US Dollar strengthened). You convert your $1,300 USD back into GBP at 1.2500, receiving 1,040 GBP (1,300 / 1.25). You now have 40 GBP more than you started with. That is the essence of currency value fluctuation.
VELARION MARKETSDESK CHEAT SHEET • LESSON 01Key Takeaways • What Is Forex Trading?
Spot Gold (XAUUSD) trades 24/5 Over-the-Counter across global interbank hubs: Tokyo, London, and New York.
1 Troy Ounce of Gold = $2,650.00 USD. Central banks hold Gold as the ultimate non-fiat sovereign reserve asset.
Peak liquidity occurs during the London and New York session overlap (12:00 - 16:00 UTC), producing 200-350 pip moves.
Avoid holding new entries through the daily 21:00-23:00 UTC rollover window due to spread widening by liquidity providers.
Lesson 1 Comprehension Check
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