The foreign exchange market is a system for foreign exchange trading and foreign exchange speculation.The foreign exchange market refers to financial institutions such as banks, proprietary traders, and large multinational companies. A trading market connect through an intermediary or telecommunications system that buys and sells in various currencies. It can be tangible—such as a forex exchange ,it also can be an invisible—such as an interbank foreign exchange transaction traded through a telecommunications system. With the increasing electronic and networked, foreign exchange quotations, inquiries, buys, sells, deliveries, and liquidations are replaced by computer networks. So we say that the current foreign exchange market is an invisible market and a paperless market for computers.
At present, there are about 30 major foreign exchange markets in the world, which are spread across different countries and regions on all continents of the world. According to the traditional geographical division, it can be divided into three parts: Asia, Europe, North America, etc. Each market has its own fixed and unique characteristics, but all markets have commonalities. Each market is separated by distance and time, and they interact each other and are independent. Once a market is open every day, orders are passed to other foreign exchange markets, sometimes setting the tone for the opening of the next market. These foreign exchange markets are centered on the city in which they operate. and radiate to other countries and regions around them. Due to the different time zones, the foreign exchange markets are open to each other during business hours, and they are connected to each other through advanced communication equipment and computer networks. Participants in the market can trade around the world, the flow of foreign exchange funds is smooth, and the exchange rate differences between markets are extremely small, forming a unified international foreign exchange market that operates globally and operates around the clock. The three major foreign exchange markets are: Tokyo foreign exchange market, London foreign exchange market and New York foreign exchange market.
- Tokyo foreign exchange market
The Tokyo market is Asia’s largest foreign exchange market, but it is the smallest of the three foreign exchange markets. Its market has to some extent continued the trend of the London and New York markets the previous day. In addition, during this period of time, the yen will also be affected by the Japanese economic elite’s comments on the exchange rate and the release of important data on the Japanese economy.
Traders in the Tokyo foreign exchange market are foreign exchange banks, foreign exchange economists, non-bank customers and Japanese banks. Trading time is 8:00-14:30 (Beijing time). The trading volume of the Tokyo foreign exchange market is relatively single, mainly in USD/JPY and EUR/JPY. In the transaction, the general market is relatively flat, but in the future transactions, we must pay attention to the speculative role of Japanese exporters. At this time, the yen has experienced significant fluctuations in the foreign exchange market. Example: On Wednesday, October 23, 2002, USD/JPY was suppressed in the Tokyo market and quickly fell from 1 USD = 125.26 yen to 1 USD = 124.00 yen.
- London foreign exchange market
London foreign exchange market is the world’s old financial center. It is also the earliest place for foreign exchange trading to start. Its long history has led banks to habitually choose to trade bulk commodities during the opening hours, so the drastic fluctuation of the foreign exchange market has also begun. In other words, if investors choose to conduct foreign exchange transactions during this time period, it is a good time. The exchange rate will also be affected by the news during this time period.
- New York foreign exchange market
The New York market rose during World War II, but it is the fastest growing financial market. Since the United States is the center of large-scale global capital flows, it has a great impact on the currency market. Some commodity transactions in the London market will wait until the opening of the New York market. As the most active foreign exchange market in the world, investors are more inclined to trade during this period in order to make more profit.
Participants in the New York foreign exchange market are branches of large commercial banks and foreign banks in the United States , famous Chinese institutions include Bank of China New York Branch and some professional forex brokers. The New York foreign exchange market is not only a domestic foreign exchange trading center, but also an important international foreign exchange market. Trading hours are from 22:00 Beijing time to 5:00 the next day. Due to the overlap between the trading hours of the New York market and the London market , the market was the most active during this period, with the largest volume of transactions and a large proportion of market volatility.
Prime time of trading
There is no foreign exchange exchange in the foreign exchange market, so there is no concept of opening and closing, it is mainly based on the normal working schedule of local people. The peak of the general transaction will appear between 9:00-17:00 on the local normal working day. Therefore, relatively speaking, the local currency is active during the trading hours of the local market. Among the three major foreign exchange markets, the London and New York market hours are the most intensive. Therefore, during the period when the two major trading markets in London and New York coincide (20:30-24:00 Beijing time in summer time), the market is most volatile, which also provides investors with greater profit opportunities for entering the market.
Non-prime time of trading
Friday: Due to some unexpected news that may occur on the weekend, in this case, the risk of trading in a position over a week is higher.
Holidays: Some banks may be closed, trading volume is light, the price fluctuations are small at this time, the profit margin is not large, it is not suitable for trading.
Weekend: The foreign exchange market will never have a strict closure, but in fact all major banks and traders are closed on weekends. The mobility on the weekend is so small that it does not offer traders many trading opportunities. When some basic news is announced on the weekend, some price changes may occur, but basically the movements of the currency pair are negligible and the trading volume is very small, which makes the execution of the transaction difficult. Therefore, the FXCM trading platform will close at 5 pm EST on Friday and reopen at 5 pm EST on Sunday.
Major event occurs: If the non-agricultural data is released and the US presidential election and the prospects for price movements are uncertain , the risk of entering the market is greater.
In the foreign exchange market, we are the smallest traders and participants. In foreign mature markets, foreign exchange trading also includes middlemen, brokerage firms, central bank international companies and some fund institutions.
Intermediary refers to the main commercial banks. In the general market, their quotes are exchange rates between currencies, and other participants in the foreign exchange market usually ask these commercial banks for the exchange rate they can provide. The brokerage company cannot directly report its own exchange rate. They pass the intermediaries’ quotes to other market participants. The brokerage company will only open the inquiry party after the determined commercial commitment. The transactions completed by the brokerage company account for 40% of the total trading volume of the foreign exchange market. International companies are often internationally renowned multinational companies with subsidiaries throughout the world. Participation in the foreign exchange market is an integral part of their international trade. Some companies also have their own foreign exchange trading rooms, specializing in foreign exchange transactions.
The current foreign exchange market can be called the global foreign exchange market, because the global time difference connects the business hours of the foreign exchange markets around the world, and can be traded without interruption. This formed a unified big market.