What is Forex?
Forex (Foreign Exchange) is the global financial market where different countries' currencies are bought and sold. With a daily trading volume exceeding $7.5 trillion, Forex is the world's largest and most liquid financial market.
Unlike stock markets, Forex does not operate on a centralized exchange. Instead, it works over-the-counter (OTC) between banks, financial institutions, hedge funds and individual traders. This allows the market to remain open 24 hours a day, 5 days a week.
Did you know? Forex daily trading volume is approximately 25 times that of the New York Stock Exchange (NYSE). This enormous liquidity allows traders to open and close positions almost instantly.
How Does Forex Work?
Forex trading involves buying one currency while simultaneously selling another. Currencies always trade in pairs. When you buy EUR/USD, you're buying Euros and selling US Dollars.
Trading Example
Say EUR/USD is at 1.0850 and you expect the Euro to rise:
- Buy (Long): You buy EUR/USD at 1.0850
- Price movement: Rate rises to 1.0900
- Sell: You close your position
- Profit: 50 pips (1.0900 − 1.0850 = 0.0050)
If you expect the Euro to fall, you open a sell (short) position. This two-directional trading — profiting from both rising and falling markets — is one of Forex's greatest advantages.
Bid and Ask Price
Every currency pair has two prices:
- Bid: The price the broker will buy from you
- Ask: The price the broker will sell to you
The difference between them is the spread — the primary trading cost.
Currency Pairs
Forex currency pairs fall into three categories:
Major Pairs
Most-traded pairs, all containing USD:
- EUR/USD — Euro / US Dollar (most popular)
- GBP/USD — British Pound / US Dollar
- USD/JPY — US Dollar / Japanese Yen
- USD/CHF — US Dollar / Swiss Franc
- AUD/USD — Australian Dollar / US Dollar
- USD/CAD — US Dollar / Canadian Dollar
- NZD/USD — New Zealand Dollar / US Dollar
Minor Pairs
No USD, but involve other major currencies: EUR/GBP, EUR/JPY, GBP/JPY, etc.
Exotic Pairs
Emerging market currencies: USD/TRY, EUR/ZAR, USD/MXN. Wider spreads, higher volatility.
Forex Market Sessions
Forex operates in four main sessions (GMT+3):
| Session | Hours (GMT+3) | Characteristics |
|---|---|---|
| Sydney | 01:00 – 10:00 | Low volatility, AUD/NZD active |
| Tokyo | 03:00 – 12:00 | Asian pairs active, JPY moves |
| London | 11:00 – 20:00 | Highest volume, EUR/GBP active |
| New York | 16:00 – 01:00 | USD pairs active, major data releases |
Most active hours: The London–New York overlap (16:00–20:00 GMT+3) sees the highest volatility and volume.
How to Trade Forex
1. Choose a Regulated Broker
A licensed and regulated broker is the most important step. Look for CySEC, ASIC or FCA regulation, segregated client funds, competitive spreads and good support.
2. Open an Account
Many brokers offer different account types. Micro accounts are ideal for beginners — you can start with as little as $5.
3. Install a Trading Platform
MetaTrader 4 (MT4) or MetaTrader 5 (MT5) are the most popular. Available on desktop, web and mobile.
4. Practice on a Demo Account
Use a demo account with virtual money — no real risk — to test strategies in real market conditions.
5. Learn Core Concepts
Study pip, lot, leverage and spread before trading real money.
6. Apply Risk Management
Follow risk management rules on every trade. Use stop loss orders and never risk more than 1–2% of your account on a single trade.
Key Tip: Many brokers offer no-deposit bonuses to new accounts. This lets you trade in real market conditions without risking your own money. XM offers a $30 no-deposit bonus — a smart way to start learning.
Advantages of Forex
- 24-hour market: Trade any time during the week
- High liquidity: Open and close positions instantly
- Two-directional trading: Profit in both rising and falling markets
- Low starting capital: Start with as little as $5
- Leverage: Control large positions with small capital
- Demo accounts: Practice with no real-money risk
- Low transaction costs: Trade on tight spreads rather than commissions
Risk Warning: Forex trading carries high risk. Leverage amplifies both profits and losses. You may lose your entire investment. Never trade with money you cannot afford to lose.
FAQ
What is the difference between Forex and the stock market? In Forex you trade currency pairs; in the stock market you trade shares. Forex runs 24 hours a day while stock exchanges have fixed hours. Forex has far greater liquidity and allows two-directional trading.
Is there a risk of losing money in Forex? Yes. Leverage magnifies both gains and losses. Statistics show a significant proportion of retail traders lose money. Learning risk management, practicing on a demo account and never risking money you can't afford to lose are essential.
How much money do I need to start Forex? Many brokers let you open an account with as little as $5. However, a recommended starting capital is at least $100–500. See our Minimum Capital guide for details.
Is Forex halal? This is debated, but swap-free (Islamic) accounts make interest-free forex trading possible. See our Is Forex Halal? guide for details.