The foreign exchange market, commonly known as Forex or FX,
is the largest and most liquid financial market in the world. It enables the
exchange of one currency for another, supporting international trade,
investment, and global economic stability. Unlike traditional stock markets,
Forex operates 24 hours a day, five days a week, across different financial
centers around the world. Understanding how the Forex market was formed, how it
functions, and who participates in it provides valuable insight into the
backbone of the global financial system. This article explores the historical
development of the Forex market, its global establishment, trading hours, and
the key players that drive its daily operations.
Events Leading to the Formation of the Forex Market
After World War II, world governments came together
to rebuild the global economy and ensure financial stability. An international
conference held in Bretton Woods, New Hampshire, 🗽United States, from July 1 to
July 22, 1944, resulted in the signing of the "Bretton Woods Agreement." A total of 44 countries signed the agreement, including notable states such as
the United States, United Kingdom, Soviet Union, France, Turkey, Canada,
Australia, Brazil, India, Netherlands, Argentina, Republic of China (Taiwan),
Belgium, Mexico, Portugal, New Zealand, and more. These countries aimed to
restructure the global economy through international cooperation and ensure
financial stability in the post-war era. The agreement led to the establishment
of two significant institutions:
- International Monetary Fund (IMF)
- International Bank for Reconstruction and Development (World Bank).
At the same time, the Bretton Woods Agreement officially adopted "the Gold-Dollar standard." The Gold-Dollar standard would serve as a currency system used in international trade and financial relations. Under this system, national currencies were directly pegged to gold or backed by gold. This facilitated international trade and financial transactions to be conducted in terms of gold. Accordingly, participating countries fixed the exchange rates of their own currencies to the U.S. dollar at a specific ratio. The U.S. dollar, in turn, was linked to gold. In other words, the holder of U.S. dollars could convert them into a certain amount of gold. However, over time, the gold link to the U.S. dollar began to weaken.
Due to the “Vietnam War” and internal economic issues in the late 1960s, the United States had to print a substantial amount of money, which undermined the dollar's connection to gold. As a result, in 1971, U.S. President Richard Nixon ended the gold-dollar standard and allowed exchange rates to float freely. This led to international exchange rates becoming flexible and fluctuating. Following this date, currency fluctuations started to impact trade and investment activities. The late 1970s marked a period of significant changes in financial markets, fueled by the development of computer technology. During this era, interbank electronic trading platforms were established, making currency trading faster and more efficient. It was during this period that the forex market began to take shape.
Establishment of the Global Forex Market
On January 8, 1976, at the Kingston Summit in Jamaica, attended by finance ministers of member countries of the International Monetary Fund (IMF), the decision was made to establish the International Foreign Exchange Market, commonly known as Forex. Central banks were allowed to engage in buying and selling currencies and gold as commodities. This gave central banks the ability to intervene in the trajectory of national currencies not only through administrative means but also through free market methods. The modern structure of the Forex market has progressively grown and developed alongside technological advancements and the process of globalization. In this context, online trading of the foreign exchange market was introduced starting from the year 1993.
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Trading Hours in the Forex Market
Forex is an investment market that operates 24/5, providing participants and investors from different geographical regions the ability to trade almost anywhere with continuous access. The market is formed through the participation of various countries worldwide. Due to the different trading centers of various countries operating in different time zones, as one trading center closes, another opens. As a result, a constant flow of trading occurs according to global time, allowing the market to remain open continuously. Let's take a look at a general timetable that indicates when these sessions are active and how one session overlaps with the opening of another as it closes:
🕛 Asian Session (Tokyo Session):
- Opening: 00:00 UTC
- Closing: 09:00 UTC
- Major currencies: Japanese Yen (JPY), Australian Dollar (AUD), New Zealand Dollar (NZD)
🕗 European Session (London Session):
- Opening: 08:00 UTC
- Closing: 17:00 UTC
- Major currencies: Euro (EUR), British Pound (GBP), Swiss Franc (CHF)
🕐 North American Session (New York Session):
- Opening: 13:00 UTC
- Closing: 22:00 UTC
- Major currencies: US Dollar (USD), Canadian Dollar (CAD)
🕙 Pacific Session (Sydney Session):
- Opening: 22:00 UTC (Previous day)
- Closing: 07:00 UTC
- Major currencies: Japanese Yen (JPY), Australian Dollar (AUD), New Zealand Dollar (NZD)
As these sessions proceed sequentially, one session closes
while another opens, ensuring a continuous flow of trading 24 hours a
day, 5 days a week. The forex market refers to the trading of foreign
currencies under predetermined conditions. Unlike other financial markets, the
forex market does not take place in a physical location and is an
over-the-counter (OTC) market. The forex market is the world's largest
international currency market, and the most heavily traded currencies include:
Euro (EUR), US Dollar (USD), British Pound (GBP), Japanese
Yen (JPY), Swiss Franc (CHF), etc.
New York, London, Tokyo, Frankfurt, and Sydney are important
centers of the forex market. Additionally, the credit-supported trading system
implemented in the forex market provides attractive conditions for investors.
In the forex market, it is possible to trade a wide range of financial
instruments, including currency pairs, commodities, and indices.
Players in the Forex Market
The main participants in the forex market are as follows:
🏦Central Banks:
Central banks, responsible for managing national monetary policies, play a key role in the forex market by overseeing foreign exchange reserves and influencing currency values. Their interventions can stabilize or devalue a currency, depending on a country's economic goals. Through actions such as adjusting interest rates or engaging in open market operations, central banks directly impact the flow of capital and the overall balance of the global foreign exchange market.
💰Investment Funds:
Investment funds are financial institutions that typically
gather money from individuals or institutional investors to create a
diversified portfolio in various asset classes. Funds investing in the forex
market aim to benefit from currency fluctuations while managing their own
portfolios.
🤵Commercial Banks and Market Makers:
Commercial banks enable their clients to engage in foreign
exchange trading and also conduct transactions for their own accounts. Market
makers, on the other hand, are participants often represented by Forex brokers
or banks that establish buy and sell prices in the market. These entities assume
the role of maintaining market liquidity and facilitating trading activities.
💼Commercial Companies:
Large corporations seek potential gains by investing their
own capital in the Forex market. Additionally, when any company conducts sales
in a foreign country and receives income in a different currency, these
corporations engage in Forex trading to manage the risk arising from
fluctuations in exchange rates.
👨💻Individual Investors/Traders:
The advancement of internet technology has enabled
individual traders to participate directly in the Forex market. Through online trading
platforms, they can engage in currency trading with a small amount of capital.
These individuals can easily access the Forex market through various brokerage
firms and brokers. By choosing a Forex broker, you can open an account. Many
Forex brokers offer free demo accounts to new traders, allowing them to
understand the market and practice trading. These accounts enable us to trade
under real market conditions using virtual money. The best part is that Forex
brokers often provide resources such as educational materials, webinars, and
analytical tools. These resources help us gain more knowledge about the market
and develop our trading strategies.
To summarize, it is possible to quickly achieve profits by trading correctly in the Forex market. By utilizing leverage, we can conduct large trades with a small capital and potentially increase our gains. In the Forex market, we can trade not only currency pairs but also different asset classes such as commodities, stocks, indices, and cryptocurrencies. While trading in this market offers a high profit potential, it also carries high risks and comes with the possibility of losses due to rapid price fluctuations. Good training, strategy and discipline are required to succeed.