What is Forex?
Foreign Exchange (Forex or FX) refers to the
global marketplace where currencies are traded. It is an
over-the-counter (OTC) market, meaning trades are conducted directly
between parties without a centralized exchange. The forex market
determines the exchange rates for currencies globally and operates
24 hours a day, closing only on weekends.
It is the
largest financial market in the world, with an average daily trading
volume of over $7.5 trillion (as of April 2022). Its immense
liquidity is driven by a network of financial centers across
different time zones. As one trading hub closes, another opens,
ensuring constant market activity
How Forex Trading Works
In forex trading, currencies are always traded in pairs, such as EUR/USD or USD/JPY. When you buy one currency, you simultaneously sell the other, speculating on the fluctuation in value between them. For instance, if you believe the euro will rise against the US dollar, you would buy EUR/USD, anticipating that the euro will appreciate.
Forex trading can be done in three primary markets:
Spot Market: The largest and most common form of forex trading, where trades are settled at the current exchange rate.
Forwards Market: Contracts between parties to trade currencies at a future date, often used by businesses to hedge currency risks.
Futures Market: Similar to forwards but traded on exchanges, these contracts standardize terms and add a layer of security.
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Risk and Reward
Forex trading offers great potential but comes with significant risks. High volatility means prices can move sharply, and traders may face temporary losses, sometimes up to 30%. Risk management is critical to success in the forex market. Strategies like scalping, day trading, and swing trading are used to navigate price movements
Important Considerations:
Forex is a high-risk market, and traders should only invest money they can afford to lose.
Success requires patience and discipline. Drawdowns are a normal part of the market, and traders must be prepared for fluctuations​