Learn the Basics of Forex Trading
Understand the ins and outs of currency trading and get a handle on the forex market.
"Forex" stands for foreign exchange, also known as FX. In a forex trade, you buy one currency while simultaneously selling another - that is, you're exchanging the sold currency for the one you're buying. The foreign exchange market is an over-the-counter market.
Currencies trade in pairs, like the Euro-US Dollar (EUR/USD) or US Dollar / Japanese Yen (USD/JPY). Unlike stocks or futures, there's no centralized exchange for forex. All transactions happen via phone or electronic network.
Who Trades Currencies, and Why?
Daily turnover in the world's currencies comes from two sources:
- 5% Foreign trade - Companies buy and sell products in foreign countries, plus convert profits from foreign sales into domestic currency.
- 95% Speculation.
Most traders focus on the biggest, most liquid currency pairs. "The Majors" include US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar. In fact, more than 85% of daily forex trading happens in the major currency pairs.
The World's Most Traded Market, Trading 24 Hours a Day
With average daily turnover of US $3.2 trillion, forex is the most traded market in the world.
A true 24-hour market from Sunday 5:00pm ET to Friday 5:00pm ET, forex trading begins in Sydney, and moves around the globe as the business day begins, first to Tokyo, London, and then New York.
Unlike other financial markets, investors can respond immediately to currency fluctuations, whenever they occur - day or night.