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Foreign exchange (also known as forex) is constantly changing the world around us. It is becoming more accessible to everyone. The forex market does not exist in one centralized location; rather, it can be seen as distributed and decentralized. In place of a central location, trading can be found within banks, central banks, retail foreign exchange brokers, and commercial businesses. 

Banks are able to control their interest rates, money supply, as well as inflation by selling and purchasing currency. In commercial business, the currency is gained through foreign exchange transactions – this is where one company may need to buy a particular currency to pay a company that is based abroad, i.e., an American company may buy euros to pay an invoice to a Spanish company.

The Three Trading Sessions

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It is essential to understand what the three sessions are and how they run before assuming any forecast. There is the Asian trading session, and this is situated in Tokyo, which was the first foreign exchange session to open. The trading momentum in Asia is often used when developing strategies and can also be used when attempting to gauge any future market dynamics. The Asian trading session is responsible for the endorsement of around 6% of forex transactions.

The European trading session is situated in London. London is seen as one of the most important foreign exchange trading sessions in the world – not only because of its size, with a significant market share (that is approximately 34%) of the daily foreign exchange capacity. As a result of the size of this market share, you will find that many large banks will base their dealing desks in London. Although its size can be seen as a benefit, due to the high value of any transactions made in conjunction with a considerable number of contributors in the London foreign exchange market, the London session is quite volatile, especially in comparison to the Asian trading session and the US trading session.

The US trading session is seen as the second largest trading market after the European trading session. It is situated in New York, where approximately 16% of all foreign exchange transactions are handled.

The International Market

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Five countries account for around 79.5% of all foreign exchange trading – sales desks in the US, Singapore, Japan, Hong Kong SAR, and the UK.  The UK is the biggest hub for forex trading – around 43.1% of global turnovers occur there. This is significantly larger than the United States share as well as Singapore and Hong Kong which have a global foreign exchange turnover of around 16.5% and 7.6%, respectively.

In the US market, the euro is traded often. It is the second most traded currency – it has accounted for around 36% of trades, and this projection is seen as consistently increasing. The US dollar and euro is a currency pair that has produced a daily average turnover of 27% – this is based on the market average. The US dollar is also involved in currency pairs with the Japanese yen, Canadian dollar, and Great British pound – all have produced market turnovers ranging between 7-19%.

In the UK foreign exchange market, the US dollar is seen as being the most traded currency – with the US dollar being involved in around 90% of all trades. Like the US market, the second most traded currency is the euro – with the same involvement rate of 36%. The Japanese yen, Australian dollar, and Great British pound allow for turnovers ranging from 5% to 19%. The euro and US dollar currency pair is constantly being traded in the UK market – with around 28% of the average daily turnover amounting to slightly over $1 trillion.

The Australian market shows popularity in its own currency – the Australian dollar and the US dollar- with the US dollar contributing to 93% of trades and the Australian dollar contributing to 52% of trades. Interestingly there is around 42% of trade within the Australian market, including other foreign currencies being exchanged outside of the Australian dollar, US dollar, and euro. The US dollar and Great British pound currency pair do not seem very profitable in the Australian market. In contrast, the US and Australian Dollar appears to be extremely successful by comparison, with the currency pair accounting for around 47% of the daily turnover (this amount is taken as an average).