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Forex trading, short for foreign exchange trading, is the process of buying and selling currencies on the global decentralized market. The forex market is the largest financial market in the world by turnover, which the Bank for International Settlements measures in a survey every three years. Unlike stock exchanges, the forex market operates 24 hours a day, five days a week.
How does the forex market work?
At its core, forex trading involves exchanging one currency for another. Currencies are always traded in currency pairs, such as EUR/USD or GBP/JPY. The first currency in the pair is the base currency, while the second is the quote currency. When you buy a currency pair, you are purchasing the base currency and simultaneously selling the quote currency.
The price of a currency pair reflects how much of the quote currency is needed to purchase one unit of the base currency. For example, if EUR/USD is quoted at 1.1050, it means one euro costs 1.1050 US dollars.
Major forex market sessions
The forex market is divided into four major trading sessions:
| Session | Hours (GMT) |
|---|---|
| Sydney | 22:00 – 07:00 |
| Tokyo | 00:00 – 09:00 |
| London | 08:00 – 17:00 |
| New York | 13:00 – 22:00 |
Features of the forex market
Features of the market that are often cited:
- Leverage — Forex brokers offer leverage ratios that allow you to control larger positions with a smaller deposit.
- 24-Hour Market — Trade at any time that suits your schedule across global sessions.
- Two-way market — A position can be long (buy) or short (sell). Either can lose as well as gain.
How to get started with forex trading
A sensible order in which to start:
- Learn the basics of how currency pairs are quoted and what influences their prices.
- Open a demo account to practice trading without risking real money.
- Develop a trading strategy based on technical analysis, fundamental analysis, or a combination of both.
- Start with a small live account and apply strict risk management rules.
- Continuously educate yourself through courses, webinars, and market analysis.
Three questions
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Question 1 of 3
Question 2 of 3
Question 3 of 3
The lesson, in a limerick
One currency, priced in another,is all that a pair is, no other.It trades round the clock,from Sydney’s first knockto New York: each centre, its brother.
Lesson 1 of 3 in Forex fundamentals. A suggested order: nothing here is graded, timed or certified.