Basic Rules of the Forex Market

The Forex market has basic rules that it operates by. In this post, I'm going to review a few important things for you to know about how the Forex market works.

While you are actually speculating – betting – on others who are actively trading a currency, you will still hear yourself referred to as a trader, and you will still hear your market actions referred to as trades.

If you are betting on the value of the U.S. dollar in relation to the value of the Euro, you are said to be trading the USD against the EUR. That trade would appear like this in your software package: USD/EUR.

You may also refer to a currency combination as a cross (in this case, the U.S. dollar/Euro dollar cross). There are seven currencies that are most actively traded in the Forex market. They are: the U.S. dollar (USD), the Euro dollar (EUR), the Canadian dollar (CAD), the Australian dollar (AUD), the Swiss franc (CHF), the British pound (GBP), and the Japanese yen (JPY).

Trading Times

In the United States, the Forex market opens at 7:00PM EST on Sunday evening and closes on Friday evening at 4:00PM EST. Between those days, the Forex market is open 24 hours a day, because the Forex is traded around the globe.

There are three trading sessions in each 24-hour period: The Asian session opens at 7:00PM EST and closes at 6:00AM EST. The European session opens at 2:00AM EST and closes at 11:00AM EST. The North American session opens at 8:00AM and closes at 5:00PM EST (except on Friday, when trading closes at 4:00PM EST).

When trading the Forex, there are three types of orders

1. Market Orders - A market order is an order to enter/exit (buy/sell) at the market price (that is, at whatever the market price is at the time of execution). This type of order can incur slippage.

2. Limit Orders - A limit order is an order placed to enter or exit the market at the exact price placed (or better) with no slippage.

3. Stop Orders - A stop order is an order to enter/exit the market at an exact price. The stop order turns into a market order when reached and can therefore incur slippage.

I'll be blogging about more Forex basics for the next few blog posts so you can get the background you need in order to understand the Forex market and become an active trader.

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