What Is Forex?

FX or Forex describes the Foreign Exchange Market, a marketplace where the world's various currencies are traded. Its huge volume and fluidity made the Forex market the largest and most significant financial market in the world, with well over $4 trillion traded daily which is almost 10 times larger than the stock market. Due to the fact that forex currency trading has no centralized marketplace, currencies can be traded in whatever market is open at any given time, creating a great opportunity for traders to buy and sell currencies around the clock 24 hours a day, 5 days a week with the exception of weekends.

The major participants of the Forex market are commercial and central banks, large corporations, and hedge funds. However, you do not need to have millions or thousands of dollars to start! Due to leverage and marginal trading, you can start trading with $100 or $500 and enjoy the same trading conditions as the large market players.

The recipe for success is to buy it at the cheapest price and then sell it at a higher price. Or the other way round - sell at a higher price and then buy cheaper. Whether a currency is increasing or declining in value, there is always a way for you to make money in Forex. Knowing the right time to buy or sell will do the trick. This is where market analytics, indicators, signals, and automated trading systems come in handy.

Let’s Consider an Example

Currencies are traded in pairs and the first part of the pair is called base currency, i.e., Euro against US Dollar (EUR/USD). A Forex transaction involves buying one currency and selling the other currency at the same time. The exchange rate reflects the value of one currency against the other currency.

For example, the quote EUR/USD 111762/111779 shows how many US Dollars you need to pay to buy or sell 1 EUR. Currency exchange rates are always fluctuating depending on the time of the day, the country's central bank rate, government policy, market sentiment, and many other reasons.

Let's assume the market forecasts the Euro is going to appreciate against the US Dollar (the bullish trend for EUR/USD). You decide to buy Euros with USD (buy order on EUR/USD). After some time, you decide to sell the Euro at a higher price (close the open EUR/USD position). Your profit is the difference between the opening and the closing prices.

Advantages of Forex

Some of the advantages of Forex Trading are listed below, which explain why Forex is the fastest-growing market in the world.

  • 24/5 Hour Market

    The Forex market operates 24 hours a day, 5 days a week, enabling traders to buy and sell from Sunday night to Friday night. Trading begins in Sydney and moves around the globe as the business day starts in each financial center.

  • High Liquidity

    The foreign exchange market is the most liquid in the world. There are always traders ready to buy or sell, ensuring constant market activity.

  • Minimum Investment

    With leveraged trading, Forex requires a lower initial investment compared to other financial markets.

  • Leverage

    Leverage allows traders to control larger positions with a smaller initial investment.

  • Trade Rising and Falling Markets

    Traders can profit regardless of whether a currency pair's value rises or falls.

  • Non-Standardized Contract Sizes

    Forex traders can choose any lot size, providing greater risk management flexibility.

  • Automated Trading

    Automated systems allow traders to follow strategies without constant monitoring, enhancing efficiency.

  • Transparency

    The deep liquidity of Forex makes it difficult for large players to manipulate the market.

Ready to Trade?

It is quick and easy to get started even with the smallest deposit. Click on Live Account if you are fully confident with your trading skills, or Demo Account to practice strategies in real market conditions with expert guidance.