What is forex?

Forex (foreign exchange market), often referred to as FX, is the largest and most liquid financial market in the world. In 2022, the daily trading volume of the forex market exceeded $7.5 trillion, far surpassing stock markets, which averaged around $553 billion per day.

1. What is forex?

2. What is forex trading?

3. How does forex trading work?

4. Who trades on the forex market?

5. How is forex traded?

6. Why trade forex?

7. Is forex trading right for you?

What is forex trading?

Forex trading involves the buying and selling of global currencies. This process allows individuals, businesses, and government institutions to pay for goods and services in other countries. For instance, when you exchange money for a vacation, you are participating in the forex market.

However, most forex transactions are not for practical purposes. Speculative traders aim to profit from fluctuations in exchange rates by predicting whether one currency will strengthen or weaken against another.

How does forex trading work?

Forex is traded in pairs – you exchange one currency for another. For example, when trading EUR/USD, you are buying euros while simultaneously selling US dollars.

• If the value of the euro rises against the dollar, you profit.

• If the value of the euro falls against the dollar, you incur a loss.

Currencies never rise or fall all at once. The strengthening of one currency always corresponds to the weakening of another, so traders analyze which currency is likely to strengthen relative to another and trade accordingly.

Who trades on the forex market?

The forex market is utilized by a wide range of participants:

• Companies: Exchange currencies to support their international operations.

• Central banks: Regulate their currency values through buying and selling.

• Banks: Dominate global forex trading, with the top 10 banks accounting for two-thirds of total trading volume.

• Retail traders: Individuals who enter the forex market to take advantage of short-term price movements.
  
  
  

How is Forex traded?

Forex trading differs from other markets in that there is no central exchange. Instead, currencies are traded through continuous interbank transactions around the world. The forex market operates 24 hours a day during the workweek, giving traders uninterrupted access to price movements.

Each currency is represented by a three-letter code:

Why trade forex?

• Speculate on Rising or Falling Prices: Unlike stocks, where you can only profit from price increases, forex allows you to profit from both rising and falling prices.

• High Liquidity: A constant flow of buyers and sellers ensures low costs and quick trade execution.

• Accessibility: The market is open 24 hours a day during the workweek, offering flexibility for traders.

Is forex trading right for you?

Forex trading may be suitable for investors who:

• Prefer Short-Term Opportunities: Forex positions are often held for a few days or weeks, with some traders executing trades in minutes or hours.

• Make Their Own Decisions: Most brokers provide platforms for trade execution only, without offering advice.

• Want to Diversify Their Portfolio: Currency trading offers exposure to global markets.