What is forex? A plain-English guide to the currency market
Forex is the world's largest financial market, with more than $7 trillion changing hands every day. Here is what it is, how it works and how to get started.
Contents
If you have ever swapped money before a trip abroad, you have already made a small forex trade. Forex, short for foreign exchange, is simply the market where the world's currencies are exchanged, just on a far bigger scale.
What exactly is forex?
Forex is a global, decentralized market. There is no central building or exchange; banks, funds, companies and individual traders deal with each other over an electronic network. According to the latest Bank for International Settlements (BIS) survey, daily turnover has passed $7 trillion, more than any other market.
Why are currencies traded in pairs?
You never just "buy dollars" in forex. You always trade one currency against another. In EURUSD, the euro is the base currency and the dollar is the quote currency. A price of 1.0850 means one euro is worth 1.0850 dollars.
- If you expect the euro to strengthen, you buy EURUSD.
- If you expect it to weaken, you sell.
Being able to sell is one of forex's attractions: you can profit in falling markets too.
When is the market open?
Forex runs 24 hours a day from Monday morning in Asia to Friday evening in New York. Trading rolls through the Asian, London and New York sessions, and volatility is usually highest when London and New York overlap.
Who trades forex?
Central banks, commercial banks, investment funds, importers and exporters, and retail traders like you. Retail traders reach the market through a broker and platforms such as MetaTrader 5.
Benefits and risks
High liquidity, long trading hours and a low starting balance make forex accessible. But leverage, which lets you control a large position with little money, can turn small moves into large losses just as easily as large gains.
How to get started
- Learn the basic terms such as pip, lot and spread (forex glossary).
- Practise on a demo account with virtual money.
- Decide your stop loss before every trade.
- Watch our free beginner forex course.
Forex is a skill, not a lottery. With education, practice and risk management, you can build it step by step.
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Trading financial markets involves risk. This article is educational and is not investment advice.
Forex and CFD trading carries a high level of risk due to leverage and you may lose more than your initial capital. Content on this site is educational and not investment advice.
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