In the Saturday, 17 May 2025 edition of this column, I titled it "Let's talk forex". In this week's edition, we will talk forex again but this time looking at how this 24-hour market actually works.
Every time you exchange Ghana Cedis for US Dollars at the forex bureau, import goods from China or send money to family abroad through legitimate channels,you are participating in the largest financial market on earth: the Foreign Exchange Market or FX.
Unlike stock exchanges around the world, which have opening and closing times, the FX market never sleeps. It runs 24 hours a day, moving an amount of money that is difficult to comprehend.
Understanding how it works is no longer just for bank traders; it is essential for business owners, investors, students and policymakers. And it is for this reason that in almost two decades of writing this column, there is always some discussion of the FX market.
Let's step into this US$9.6 trillion-a-day behemoth, shall we?
According to the Bank for International Settlements (BIS) Triennial Survey 2025, the global foreign exchange market now turns over more than $9.6 trillion every single day.
To put that in context, that is over three times the annual Gross Domestic Product of the United States, traded every 24 hours. According to analysts, this dwarfs the combined daily turnover of all global stock markets.
So what drives this volume? International trade, cross-border investment, tourism, remittances and speculation all play a part. When Ghana imports machinery from Germany or exports cocoa to the Netherlands, it all flows through the FX market.
Here are a few facts you need to know. In FX, you never buy or sell a single currency in isolation. You always trade one currency against another, commonly known as a currency pair.
More than 80 per cent of all global trading is concentrated in just seven major pairs:
EUR/USD – Euro vs US Dollar
USD/JPY – US Dollar vs Japanese Yen
GBP/USD – British Pound vs US Dollar
USD/CHF – US Dollar vs Swiss Franc
AUD/USD – Australian Dollar vs US Dollar
USD/CAD – US Dollar vs Canadian Dollar
NZD/USD – New Zealand Dollar vs US Dollar
For Ghana, while these majors set the global tone, the most relevant pair on the ground is USD/GHS. Its movement determines import costs, fuel prices and inflation expectations. If you follow the media, I am sure you are familiar with this dynamic.
Despite talk of de-dollarisation, the US Dollar remains the undisputed king of FX. The BIS data shows it is on one side of 90 per cent of all transactions globally.
The Euro is a distant second at 29 per cent of trades, followed by the Japanese Yen at 17 per cent.
This is why a single statement from the US Federal Reserve can send shockwaves from Wall Street to the rest of the world within minutes; hence the common phrase that when the US sneezes, the rest of the world catches a cold.
When global uncertainty rises, traders rush to what are known as safe-haven currencies and assets. The US Dollar (USD), the Swiss Franc (CHF), the Japanese Yen (JPY), and gold dominate this space. They are perceived to hold value when everything else is falling.
Every currency has a three-letter code under the ISO 4217 standard to prevent confusion. A few you should know:
USD – United States Dollar
GBP – British Pound Sterling
GHS – Ghanaian Cedi
ZAR – South African Rand
CAD – Canadian Dollar
So when you see a quote: USD/GHS = 11.5000, it simply means 1 US Dollar = 11.5000 Ghana Cedis. This is where many beginners get confused.
Take USD/GHS. USD is the Base Currency – that’s the first one. GHS is the Quote or Variable Currency – the second one.
The quote tells you how much of the quote currency you need to buy one unit of the base.
Most importantly, every quote has two prices: the Bid and the Ask.
The Bid Price is the price at which a dealer will BUY the base currency from you. If you want to sell Dollars, this is the price you get.
The Ask Price is the price at which a dealer will SELL the base currency to you. If you want to buy Dollars, this is the price you pay.
The Bid is always lower than the Ask. For example, if the quote is 11.5000 / 11.5100, you can sell USD at 11.5000 and buy at 11.5100.
Two concepts you will hear every trader use are pip and spread.
A Pip stands for "point in percentage." It is the smallest measurable move in a currency pair, usually the fourth decimal place. If USD/GHS moves from 15.8500 to 15.8600, traders say it has rallied 100 pips. Pips are how profit and loss are counted.
The Spread is the difference between the Bid and ask. Using our example, 11.5100 minus 11.5000 equals 0.0100 or 100 pips. The spread is essentially the cost of trading.
This leads to liquidity. A currency pair is liquid if you can buy and sell it quickly without a big price change. The universal rule is that the smaller the spread, the more liquid the market.
Major pairs such as EUR/USD have spreads of less than one pip. Exotic pairs such as USD/GHS have wider spreads because they are less liquid.
Unlike buying shares where you only profit if the price goes up, FX is a two-way market. You can profit from both rising and falling markets.
Other key terms you need to know:
1. Plunging: A sharp fall.
2. Rallying: A recovery after a fall.
3. Appreciation: A gain in value under a floating exchange rate like Ghana's.
4. Depreciation: A loss in value under a floating system.
5. Devaluation: A deliberate, official reduction in value by a government under a fixed exchange rate regime.
The FX market has no central exchange building like the New York Stock Exchange (NYSE). It is an over-the-counter market, conducted electronically between banks worldwide.
As the world turns, different financial centres wake up, which is why it trades 24 hours.
Note that the most volatile and opportunity-filled periods are when sessions overlap. For example, in the early morning in London (8 a.m., GMT), Tokyo traders are still active and closing positions, while London desks are analysing overnight Asian news.
The London/New York overlap between 12 p.m. and 4 p.m. GMT is historically the busiest time, with the highest volumes and sharpest price moves.
If the sessions are the clock, what are the hands that move the market? Four forces:
1. Political statements: By influential leaders and policymakers.
2. Economic data: GDP growth, inflation, debt levels, retail sales and investor sentiment.
3. Central Banks: The most powerful players – interest rate decisions, money supply and reserve management.
4. Natural Disasters: Which can disrupt trade and investor confidence.
The market will not sleep. But if you understand its language, you can learn to navigate it.
