Foreign Exchange Market: Your Comprehensive Guide to Getting Started in Forex Trading

Introduction to Forex and Its Importance in the Global Economy

Forex is a fundamental pillar in the global financial markets, representing the largest market in terms of trading volume and liquidity. According to the latest statistics recorded in April 2025, the average daily trading volume in this market exceeds $9.6 trillion, far surpassing the combined trading volumes of global stock markets.

This enormous size reflects the global nature of currencies and the international economic system’s reliance on continuous currency exchanges between countries, institutions, and individuals. Every time you convert your currency before traveling to another country, you are directly participating in this nonstop, massive market.

What is Forex?

Forex is short for “Foreign Exchange Market,” a system where individuals, banks, corporations, and governments trade currencies around the clock. The system operates on a simple process: buying one currency while selling another at the same time, aiming to profit from changes in exchange rates between them.

When dealing with the currency market, you always deal with currency pairs such as EUR/USD or USD/JPY. The first currency is called the “base currency”, and the second is the “quote currency”. The displayed price tells you how many units of the quote currency you need to buy one unit of the base currency.

Basic Facts About the Forex Market

The market has unique characteristics that distinguish it from other financial markets:

• Unparalleled Financial Giant: Its size, liquidity, and activity rate cannot be compared to any other market globally
• Global Network Without a Centralized Exchange: No central exchange exists; instead, a global electronic network connects banks and financial institutions
• Active 24 Hours Daily: Operates around the clock (except for weekends) due to the succession of trading sessions among major financial centers
• Always Traded in Pairs: No single currency is traded alone; always against another currency

How the Forex Market Works

The trading system in the market differs fundamentally from stock and commodity markets. Instead of a centralized exchange, trading occurs via a global network of financial institutions connected electronically—this is known as OTC (Over-The-Counter) trading.

Traders make decisions based on their expectations of currency movements:

• Buy: Expecting the base currency to rise in value
• Sell: Expecting the base currency to fall in value

Since currency movements depend on continuous comparisons between two currencies, an increase in one currency necessarily means a decrease in the other.

Although major banks historically dominated most trading, the market has now become more open, allowing individual traders to enter and benefit from rapid movements.

Classification of Currency Pairs

Currency pairs are divided into three main categories, differing in trading volume and liquidity:

( Major Pairs )Majors###

Include the most traded currencies worldwide linked to strong economies. They feature high liquidity and narrow spreads, forming the largest share of trading:

• EUR/USD (Euro/USD)
• USD/JPY (Dollar/Yen)
• GBP/USD (Pound Sterling/USD)
• AUD/USD (Australian Dollar/USD)
• USD/CHF (Dollar/Swiss Franc)
• USD/CAD (Dollar/Canadian Dollar)

The EUR/USD pair alone accounts for a very large percentage of total trading.

( Minor Pairs )Minors###

Cross pairs that do not include the US dollar. Less active than majors but with higher costs due to wider spreads:

• EUR/GBP, EUR/CHF, GBP/JPY, CAD/JPY, EUR/NZD

( Exotic Pairs )Exotics###

Combine a strong currency with one from an emerging economy. They tend to be more volatile with wider spreads, suitable for experienced traders:

• USD/MXN, USD/THB, GBP/PLN, EUR/RUB

Essential Terms You Should Know

Spread: The difference between the bid and ask price. Example: If the bid is 1.1050 and the ask is 1.1048, the spread = 2 pips.

Lot: A unit of measurement for trade size. Divided into different types (Standard, Mini, Micro) to facilitate risk management.

Pip: The smallest price movement in a currency pair, usually the fourth decimal place.

Leverage: A tool that allows increasing the size of a trade using a small portion of capital. Example: With 1:100 leverage and a $100 deposit, you can trade with $10,000.

Margin: The amount required as collateral to open a leveraged position.

Global Trading Hours Table

The market opens on Monday with the Sydney session and closes on Friday with the New York session. The best trading opportunities occur during overlapping sessions, especially when London overlaps with New York, where trading volume and liquidity increase significantly.

The Asian session experiences relatively lower activity, especially mid-session, making trading opportunities limited compared to other periods.

Factors Affecting Currency Movements

( Central Bank Monetary Policies

Interest rate decisions and quantitative easing directly influence currency attractiveness. Raising interest rates makes a currency more attractive to foreign investments. For example, in 2022, the US Federal Reserve raised rates consecutively, leading to a rise in the dollar against the euro and yen.

) Inflation and Economic Growth

Rising inflation reduces a currency’s purchasing power, while strong growth attracts investments. When China announced a slowdown in growth in 2015, its central bank lowered the yuan’s value, impacting global markets.

Direct Government Intervention

Central banks sometimes intervene to support or devalue their currency. In the Plaza Accord of 1985, efforts by five major countries aimed to devalue the dollar.

Political and Geopolitical Events

Political crises push investors toward “safe haven” currencies like the dollar and yen. During the COVID-19 pandemic in 2020, capital moved toward these safe assets.

Trading Styles: Long-Term vs. Short-Term

Long-Term Trading

Involves holding positions for weeks, months, or years. Focuses on fundamental analysis of economic factors. Traders monitor growth indicators, interest rates, and central policies.

Advantages:

• No need for constant screen monitoring
• Focus on major trends reduces daily volatility anxiety
• More time for analysis and planning
• Less psychological pressure

Tools Used: Futures and forward contracts on major pairs.

Short-Term Trading

Focuses on daily or intraday price movements to achieve quick profits. Positions last from minutes to days. Requires continuous monitoring and intensive technical analysis.

Advantages:

• Faster profit opportunities
• Flexibility in strategies ###Daily, Scalping, etc.###
• Market is nearly always open
• Exploiting rapid fluctuations
• Daily closing reduces exposure to sudden events

Tools Used: CFDs, spot trading.

Popular Trading Strategies

( Scalping )Scalping(

Opening and closing trades within minutes or seconds, earning small profits from specific points.

) Day Trading ###Day Trading(

Opening and closing trades within the same day to capitalize on short-term volatility.

) Swing Trading ###Swing Trading(

Holding positions for several days or weeks to benefit from medium-term trends.

) Trend Following ###Trend Following(

Following the overall price movement, buying on upward trends and selling on downward trends.

Basic Technical Indicators

• Moving Averages: Show overall trend and reduce daily volatility effects
• RSI (Relative Strength Index): Determines if the price is overbought or oversold
• MACD: Indicates trend direction and potential reversals
• Bollinger Bands: Reveal volatility levels and anticipate sudden movements
• Support and Resistance: Price levels where the market tends to pause or reverse

Advantages and Disadvantages

) Advantages

✅ 24-Hour Trading: Full flexibility to choose suitable times

✅ Low Capital Requirement: Can start with a small capital using leverage

✅ High Liquidity: Ability to execute large trades without significant price impact

✅ Various Opportunities: Profits from short-term and long-term movements

Disadvantages

❌ High Risks: Possibility of losing all invested capital

❌ Complex Learning Curve: Requires advanced knowledge of technical and fundamental analysis

❌ Continuous Volatility: Offers opportunities but increases risk of large losses

❌ 24-Hour Management: Trades are exposed to constant changes

Steps to Start Trading Forex

1. Open a Trading Account
Choose a reliable platform offering strong analytical tools and user-friendly interface.

2. Develop a Clear Plan
Define your invested capital, trade sizes, currency pairs, and profit goals.

3. Use a Demo Account
Practice strategies with virtual funds before risking real capital.

4. Select Currency Pairs
Start with major pairs that have high liquidity.

5. Manage Risks Wisely
Use stop-loss and take-profit orders. Do not risk more than 1-2% of your capital per trade.

6. Monitor Trades and Market
Track market movements using technical and fundamental analysis tools.

7. Evaluate Performance
After each trade, assess what worked and what needs improvement.

Tips for Beginners

💡 Learn the Basics First: Study currencies and influencing factors before actual trading

💡 Stick to Your Plan: Set a plan and follow it in every trade

💡 Practice First: Use a demo account to gain experience

💡 Money Management: Set financial limits and use protective orders

💡 Control Emotions: Don’t let losses or greed control you

Summary

The forex market offers a real opportunity to earn profits through currency trading. Its massive size ($9.6 trillion daily), high liquidity, and 24/7 availability make it the prime market for traders of all levels.

Success depends on continuous learning, developing analytical skills, and strict risk management. Whether you choose short-term or long-term trading, understanding the market, proper planning, and using the right tools are keys to achieving success and profitability.

Forex is not just a currency exchange market but an ongoing educational experience in understanding the global economy and financial markets, provided you approach it wisely and with financial discipline.