Forex trading, also known as foreign exchange trading, is the process of buying and selling currencies with the aim of making a profit from fluctuations in exchange rates. It is the largest financial market globally, operating 24 hours a day, five days a week, with a daily turnover exceeding $7 trillion.

This article explains what forex trading is, how it works, who participates, and why it has become a popular investment avenue worldwide.

Key Takeaways

• Forex trading involves exchanging one currency for another in pairs.
• Traders speculate on whether a currency will strengthen or weaken.
• The forex market operates globally and continuously, except weekends.
• Participants include banks, corporations, governments, and retail traders.
• Successful forex trading requires knowledge, strategy, and risk management.

How Forex Trading Works

Currencies are traded in pairs, such as EUR/USD or GBP/JPY. The first currency is the base, and the second is the quote. If you expect the base currency to appreciate, you buy the pair; if you expect it to depreciate, you sell.

Example: Buying EUR/USD at 1.1000 means you expect the euro to rise against the US dollar.

Who Trades Forex?

• Central Banks: Influence currency values through monetary policy.
• Commercial Banks: Facilitate currency transactions and speculative trading.
• Corporations: Hedge currency risks related to international business.
• Retail Traders: Individual traders using online platforms to speculate.

Why Trade Forex?

• High liquidity and low transaction costs.
• Availability of leverage to increase exposure.
• Access to diverse global markets.
• Opportunities in both rising and falling markets.

Case Study

Emma, a beginner trader, enrolled in a structured Forex Course, learning how to analyse markets and manage risk. She started with a demo account and gradually moved to live trading, successfully applying strategies to major currency pairs.

Fundamental vs Technical Analysis

Analysis Type	Focus
Fundamental	Economic data, interest rates, news events
Technical	Charts, indicators, price patterns

Frequently Asked Questions

What is forex trading?

Forex trading is the exchange of one currency for another in the global marketplace, aiming to profit from exchange rate changes.

Is forex trading legal?

Yes, forex trading is legal and regulated in most countries, including the UK.

How much money do I need to start?

You can start with as little as £100, though more capital allows better risk management.

Can beginners succeed at forex trading?

Yes, with proper education, discipline, and practice, beginners can become successful traders.

What are major currency pairs?

Major pairs include EUR/USD, GBP/USD, USD/JPY, USD/CHF, and AUD/USD.