What is Forex Trading?
Understand how the world's largest financial market works - trade currencies 24 hours a day with high liquidity and leverage
What is Forex Trading?
Forex trading (foreign exchange or FX trading) is the buying and selling of currencies on the global market. When you trade forex, you are simultaneously buying one currency and selling another, speculating on whether exchange rates will rise or fall.
The forex market is the largest and most liquid financial market in the world, with over $7.5 trillion traded daily (BIS 2022). It operates 24 hours a day, 5 days a week, as trading moves through financial centers in Sydney, Tokyo, London, and New York.
Unlike stocks where you buy shares of a company, forex trading involves currency pairs like EUR/USD or GBP/JPY. If you think the euro will strengthen against the dollar, you buy EUR/USD. If you think it will weaken, you sell it.
How Forex Trading Works
| Currency Pairs | Always traded in pairs (EUR/USD, GBP/JPY) |
| Base Currency | First currency in pair (EUR in EUR/USD) |
| Quote Currency | Second currency (USD in EUR/USD) |
| Pip | Smallest price move (0.0001 for most pairs) |
| Lot Size | Standard lot = 100,000 units of base currency |
| Leverage | Control large positions with small capital (50:1 to 500:1) |
Major Currency Pairs
| Pair | Name | Typical Spread | Volatility |
|---|---|---|---|
| EUR/USD | Euro/US Dollar | 0.1-1 pip | Low-Medium |
| GBP/USD | British Pound/US Dollar | 1-2 pips | Medium-High |
| USD/JPY | US Dollar/Japanese Yen | 0.5-1 pip | Low-Medium |
| USD/CHF | US Dollar/Swiss Franc | 1-2 pips | Low-Medium |
| AUD/USD | Australian Dollar/US Dollar | 1-2 pips | Medium |
| USD/CAD | US Dollar/Canadian Dollar | 1-2 pips | Medium |
Note: These are best-case spreads at low-cost brokers. Actual spreads may be wider depending on broker, account type, and market conditions.
Why Trade Forex?
24-Hour Market
Trade around the clock from Sunday 5 PM to Friday 5 PM ET. No waiting for market open.
High Liquidity
$7.5+ trillion daily volume means tight spreads and easy execution at any size.
High Leverage
Control large positions with small capital. Leverage up to 50:1 in US, higher overseas.
No PDT Rule
Unlike stocks, there is no Pattern Day Trader rule. Trade as often as you want.
Low Costs
No commissions at many brokers, just the spread. Low barrier to entry.
Profit in Any Direction
Go long or short with equal ease. Profit whether currencies rise or fall.
Forex Trading Sessions
| Session | Hours (ET) | Best Pairs |
|---|---|---|
| Sydney | 5 PM - 2 AM | AUD, NZD pairs |
| Tokyo | 7 PM - 4 AM | JPY pairs |
| London | 3 AM - 12 PM | EUR, GBP pairs |
| New York | 8 AM - 5 PM | USD pairs |
| London/NY Overlap | 8 AM - 12 PM | Highest volume period |
Forex Trading Risks
Forex trading carries significant risks. Understand these before trading:
Frequently Asked Questions
What is forex trading?
Forex (foreign exchange) trading is the buying and selling of currencies. Traders speculate on whether one currency will rise or fall against another, profiting from exchange rate movements.
How big is the forex market?
The forex market is the largest financial market in the world, with over $7.5 trillion traded daily (BIS 2022). It operates 24 hours a day, 5 days a week across global financial centers.
How much money do you need to start forex trading?
You can open forex accounts with as little as $100-500 at some brokers. However, most experts recommend starting with at least $1,000-2,000 for proper risk management and position sizing.
Is forex trading risky?
Yes, forex trading involves significant risk, especially due to high leverage offered by brokers. Most retail forex traders lose money. Proper education, risk management, and starting small are essential.
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Risk Disclosure: Trading involves substantial risk of loss and is not suitable for all investors. This content is for educational purposes only and does not constitute financial advice.
Last updated: December 2025