What is the Forex Market?

Traders can use the forex market for speculative and hedging purposes, including buying, selling, or exchanging currencies. Banks, companies, central banks, investment management firms, hedge funds, retail forex brokers, and investors are all part of the foreign exchange (Forex) market – the largest financial market in the world.

Global Network of Computers and Brokers.

As opposed to a single exchange, the forex market is dominated by a global network of computers and brokers. A currency broker may act as both a market maker and a bidder for a currency pair. Consequently, they may either have a higher “bid” or a lower “ask” price than the market’s most competitive price. 

Forex Market Hours.

The Forex markets opens Monday morning in Asia and Friday afternoon in New York, the currency markets operate 24 hours a day. The Forex market opens from Sunday at 5 p.m. EST to Friday at 4 p.m. eastern standard time.

The End of Bretton Woods and the End of the US Dollars Convertability to Gold.

A currency’s exchange value was tied to precious metals such as gold and silver before World War I. This was replaced after World War II by the Bretton Woods agreement. This agreement led to the formation of three international organizations focused on promoting economic activity around the world. They were the following:

  1. International Monetary Fund (IMF)
  2. General Agreement on Tariffs and Trade (GATT)
  3. International Bank for Reconstruction and Development (IBRD)
President Nixon changes the Forex markets forever by announcing the US will no longer redeem US Dollars for gold in 1971.

As international currencies were pegged to the U.S. dollar under the new system, gold was replaced by the dollar. As part of its dollar supply guarantee, the government of the United States maintained a gold reserve equivalent to gold supplies. But the Bretton Woods system became redundant in 1971 when U.S. President Richard Nixon suspended the dollar’s gold convertibility.

The value of currencies is now determined by supply and demand on international markets instead of by a fixed peg.

This differs from markets such as equities, bonds, and commodities, which all close for a period of time, generally in the late afternoon EST. However, as with most things, there are exceptions for emerging currencies being traded in developing countries. 


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