What is Forex?
... and how does FX Trading work?
Forex, also known as foreign exchange trading or FX trading is defined as the process of changing one currency into another, for various reasons like commerce, tourism, and trading. According to the Bank of International Settlements, the daily Forex trading volume in 2019 was more than $5.1 trillion, and this number is steadily growing with every passing day.
In this article, we will take a closer look to understand what is Forex and how does FX trading work?
What is Forex?
The foreign exchange or FX is a global marketplace where national currencies are exchanged against one another. It includes a network of buyers and sellers who transfer currencies among each other at an already agreed price. It is the main way for companies, individuals, and central banks to actively convert one currency into another
Even though a lot of currency conversion happens because of practical reasons, the majority of forex trading is done for profit purposes. The vast amount of currency that is converted everyday can make the sheer price fluctuations of some currencies heavily volatile.
And it is this volatility of the currency market that attracts so many traders to it: greater chance of profits and higher risks. Although, these risks eventually simmer down when you know exactly how and where to trade.
How FX Trading works?
Forex trading involves buying one currency and then simultaneously selling the other one. By speculating and analyzing the direction the currencies are most likely to take in the coming future, traders try to make a profit by buying currencies whose value is expected to increase in the future and selling currencies that might lead to a loss.
Forex trading does not take place on pre-decided exchanges. Instead, you trade currency in an over-the-counter (OTC) market, directly between two parties.
The forex market is in fact run by a wide global network of banks that are spread across major trading centres in different time zones including: Tokyo, Sydney, New York, Frankfurt, Singapore, Paris, and London. Since there is no centralized location for forex trading, the market is open for five and a half days every week, 24 hours a day and the currencies can be traded in all the major financial centers of the world in almost every time zone.
That means, when the trading day ends in New York, it kickstarts back again in Hong Kong and Tokyo. Therefore, the forex market can be incredibly active at any time of the day with the price quotes constantly changing.
Global Forex Market Hours
Once you have decided on the currency you want to trade, you also need to decide on how you want to trade currency. There are three different types of Forex markets:
- Spot forex market: This is the physical exchange of currency pairs that happens ‘on the spot’ or within a short span of time.
- Forward forex market: In this, a customizable and private agreement is set up with details about the currency to be traded, the set price, and the range of future dates when the exchange is expected to take place
- Future forex market: In this, a standardized agreement is set up with the same details as that of forward forex. The main difference is that the future forex is traded through central marketing with a legally binding contract, whereas the forward forex is traded through over the counter contracts (just private agreements between theo parties trading)
Most traders do not plan on taking the delivery of the currency. Instead, they focus on making exchange rate predictions between different currency pairs to take advantage of the price movements
Want to know more about how to trade Forex? Check out our detailed guide.
Habits of Forex Traders
Forex trading requires discipline, focus, and a strong understanding of market trends.
Forex Trading Opportunities When Markets are Closed over Weekends
The forex market can be operated 24/7 Monday to Friday.
How to Calculate Forex Position Sizing
Each trader in the forex market defines their position size before moving forward with a trade.
Understanding Forex Risk Management
The forex market is the most liquid and largest market in the world. However, like any other financial market, the forex market can also be risky during times of high volatility.
Hedging in Forex: How to Hedge Currency Risk
Forex hedging or currency hedging allows you to open multiple trade positions to offset any possible currency risk associated with your current position
What Is PIP in forex trading?
PIPs are essential in forex as they tell the traders about the size of profits or losses that can be made from a particular currency pair.
What Is Gap Trading?
Gaps in the Forex market help traders identify price movement clues, entry and exit signals, and trend reversals.
Top Swing Trading Indicators
Swing trading is all about profiting from market swings. It is a popular speculative strategy where traders tend to buy and hold their assets hoping to profit from expected market movement.
What are Support and Resistance Levels
Support and resistance levels in the Forex market allow traders to understand the market direction and predict future prices to consider in making trade decisions.
MT4 vs MT5: Which is Better?
MetaTrader is one of the most popular online trading platforms used globally and its two main versions are MetaTrader 4 and MetaTrader 5. But between MT4 and MT5, which is one best for you?
What is Forex?
The Forex market offers high liquidity and margin opportunities for you to trade and potentially profit off of exchange rates of currencies. With a daily volume of more than $6.6 trillion in 2019, it is the largest financial market in the world.
What is Margin trading?
Margin trading is one of the most common derivative strategies used in financial markets. It can also be considered tax-efficient as it allows you to choose the size of your wager and exempts profits earned from stamp duties and taxes.
What is Leverage in Forex
Leverage allows traders to hold large positions in the Forex market with fewer capital. With leverage trading, traders can borrow money from a broker and hold larger positions, which in turn could magnify returns or losses.
How To Set a Stop Loss Order in Forex Trading
A stop loss order is used to prevent extensive losses, especially during severe market dip situations. By placing a stop loss order, you can automatically close your position if the market moves against you.
MetaTrader 5: The Complete Guide
MetaTrader 5, the powerful automated trading platform, offers advanced tools for successful trading analysis and trades in the financial markets. Aside from Forex, the MT5 platform helps you trade Stocks, CFDs, and Futures.
What is MetaTrader 4: The Complete Guide to MT4
An advanced trading platform, MT4 has become a norm for seasoned Forex traders as it helps them execute their trades even when their machine is off. It comes with a user-friendly interface, numerous technical analysis tools for forecasting market patterns, real-time currency price data, and much more.
What are Long and Short Positions in Forex?
In Forex trading, you can take long or short positions based on expectations of the market rising or falling. Long or buy positions are maintained when traders expect currency pair prices to increase in the future.
What is a Spread in Forex?
A spread is a cost built into the buying and the selling price of all the currency pairs. In most cases, Forex spreads depend on your Forex broker.
What is a Currency Pair in Forex?
The foreign exchange (Forex) market is the largest financial market in the world. With a daily average volume of about $6.6 trillion and worth over $2.4 quadrillion as of 2021, Forex is a decentralised global market for trading currencies.
How do you trade forex?
Many people want to get into Forex trading and make quick profits, but only a few even know how to start. While trading Forex online has now become easier than ever because of powerful platforms like Blueberry Markets, it can still feel incredibly overwhelming to get started with it.
When Can You Trade Forex?
In case you are wondering is Forex trading profitable, the short answer is yes. But many opt for Forex traders to make fast profits since Forex markets are operational 24 hours for five days a week.
Who trades forex?
Major players in the Forex market are financial institutions including commercial banks, central banks, money managers along with hedge funds. Many global corporations also trade in Forex to hedge currency risk.
Why trade forex?
As the largest financial market globally, Forex trading is one of the most popular investment avenues for many. The liquidity and huge trading volume make Forex trading an option worth exploring.
Forex Margin & Leverage
Forex trading usually provides much higher leverage compared to other financial instruments like stocks. This is one of the primary reasons why so many people are attracted to Forex, and more and more people have started to enter the Forex trading market.
Key steps to making your first trade in Forex
Making your first trade in Forex successfully requires in-depth knowledge about trading basics and Forex trading strategies. The learning curve to trading currencies can seem overwhelming and complex, but when you have the right information by your side, it can make the entire process all the more easier.
How is Forex regulated?
There are several Forex brokers in the Forex market, and amidst those thousands of Forex brokers, it can become nothing less than challenging for traders to find the best brokers.
When you hold a currency spot position overnight, the interest you either earn or pay is the rollover amount. Each currency has a different overnight interbank interest rate, and because you trade Forex in pairs, you also deal with two different interest rates.
Tips for Forex trading beginners
In terms of trading volume, the Forex market is the largest financial market in the world. It is also the only financial market that operates round the clock every day.
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