What is FX?

The foreign exchange ('FX') market (or 'currency market') is an over-the-counter trading instrument where one currency is traded for another. It is the most traded market in the world.

Essentially, FX is the trading of currencies against one another: buying one currency and selling another at the same time.

How the FX market operates

Unlike most financial markets, the FX market has no physical location and no central exchange. The FX market operates 24 hours a day through an electronic network of banks, corporations and individual traders.

FX trading follows the clock, and begins every day in Sydney, moving to Tokyo, followed by London and then New York.

Prices

FX prices are influenced by international trade and investment flows, and economic and political conditions. The liquidity of the markets mean that prices can change rapidly in response to news and short-term events.

"Pips"

Currencies are usually quoted to four decimal places, such as the Euro/US Dollar trading at 1.2400/1.2403, with the last decimal place referred to as a point or "pip". A pip for most currencies is 0.0001 of an exchange rate. The usual exception to this is any pair with a JPY denominaton. These usually have pips of 0.01.

Forex and CFD trading carry a substantial risk of loss and are not suitable for all investors. Please refer to our Risk Warning policy (PDF) for more information.

Trading derivatives can result in losses that exceed your initial deposit. The information in this communication is general in nature only and does not take into account your objectives, financial situation or needs. It is important for you to consider these matters before making an investment decision. City Index recommends that you seek independent professional advice. A Product Disclosure Statement (PDS) is available here . Information about our services, including our fees and charges is also contained in our Financial Services Guide, which is available at this source. It is important for you to consider the PDS in deciding whether to acquire, continue to hold, or dispose of CFDs. City Index Australia Pty Ltd (ACN 141 774 727), AFS License No. 345646.