Forex trading, also known as foreign exchange trading or currency trading, is the process of buying and selling currencies in the global marketplace. It is the largest and most liquid financial market in the world, with a daily trading volume exceeding $7 trillion. Forex trading plays a critical role in international trade, investments, and global financial stability.

This article explains what forex trading is, how it works, who participates in it, and why it’s become one of the most popular ways to trade financial markets online.

Key Takeaways

• Forex trading involves the exchange of one currency for another with the aim of profiting from price changes.
• Trades are executed in currency pairs, such as EUR/USD or GBP/JPY.
• The forex market operates 24 hours a day, five days a week, across major global financial centres.
• Traders use technical and fundamental analysis to identify opportunities and manage risk.
• Forex trading can be speculative or for hedging purposes.

How Forex Trading Works

Forex trading is based on predicting whether one currency will strengthen or weaken relative to another. Currencies are traded in pairs—such as EUR/USD—where the first currency (EUR) is the base and the second (USD) is the quote. If you believe the euro will rise against the dollar, you buy the pair; if you think it will fall, you sell.

For example:

• Buy EUR/USD at 1.1000: You expect the euro to appreciate against the dollar.
• Sell EUR/USD at 1.1000: You expect the euro to depreciate against the dollar.

Most forex trades are speculative, aiming to profit from short-term price movements based on news, interest rates, or market sentiment.

Major Participants in the Forex Market

Participant	Role
Central Banks	Control monetary policy and intervene in markets to stabilise currency
Commercial Banks	Execute forex transactions for clients and proprietary trading
Corporations	Hedge currency exposure from international business
Retail Traders	Individual investors trading through online brokers
Hedge Funds	Use leverage and macro strategies to profit from currency trends

Why People Trade Forex

• High Liquidity: Massive daily volume allows easy entry and exit from trades.
• Leverage: Brokers offer leverage, allowing traders to control larger positions.
• Low Costs: Most brokers charge tight spreads and no commissions.
• Accessibility: Trade from anywhere with internet access.
• Market Hours: Trade 24/5 from Monday to Friday.

Forex Trading Example:

Sarah, a trader from London, enrolled in a professional Forex Course to learn how the market operates. She learned how to analyse economic data like inflation and interest rates, use technical charts, and apply proper risk management. Starting with a demo account, she built her strategy and now trades the GBP/USD and EUR/USD pairs with consistency, aiming for a 2:1 reward-to-risk ratio per trade.

Fundamental vs Technical Approach

Aspect	Fundamental Analysis	Technical Analysis
Focus	Economic indicators, interest rates, news	Price charts, indicators, patterns
Trade Duration	Longer-term trends	Short-term patterns and breakouts
Tools Used	Economic calendars, central bank reports	MT4/MT5 platforms, indicators, candlesticks
Common Users	Macro traders, institutional funds	Retail traders, day traders

Frequently Asked Questions

What is forex trading in simple terms?

Forex trading is the act of buying one currency while simultaneously selling another, aiming to profit from changes in exchange rates.

Is forex trading legal in the UK?

Yes, forex trading is legal in the UK and regulated by the Financial Conduct Authority (FCA).

Can I start forex trading with no experience?

Yes, but it is strongly recommended to take a structured course and use demo accounts before risking real money.

How much money do I need to start forex trading?

You can start with as little as £100, although many brokers recommend at least £500 for more realistic risk management.

What are the most traded forex pairs?

The most traded pairs include EUR/USD, GBP/USD, USD/JPY, USD/CHF, and AUD/USD.