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Forex trading—or foreign-exchange trading—is the buying and selling of international currencies. Learn more about what forex trading is and how it works.

Veteran stock traders might know about pairs trading. Pairs trading involves taking a bullish position in one stock or index paired with a bearish position in another, essentially trading the value of one security relative to that of another.

The forex market is another way to access pairs trading. In Forex, however, traders use currency pairs, which essentially is trading the value of one currency relative to that of another currency. Each currency pair is the ratio of one currency’s value to another currency’s value.

What is forex trading?
Forex trading takes place in a dynamic, international market that is open virtually around the clock. Because foreign exchange rates are based on international interest rates as well as macroeconomic and geopolitical conditions, they’re always fluctuating.

The forex market is not conducted on an exchange, which means there is nomor physical location where all currencies trade.

Before considering trading forex, here are some basics every trader should understand:

Leverage: Forex trading involves leverage, meaning traders can take a position in a larger investment with a relatively small amount of initial capital. This allows for strong potential returns, but traders should be aware that it can also result in significant losses and losses greater than your initial investment.
Nearly 24/6 market: Traders need to be responsive to market conditions and economic events knowing that they can trade almost 24 hours per day, 6 days per week, from Sunday to Friday.
Liquidity: Forex is a very active market with an extraordinary amount of trading, especially in the major currencies. Trading more obscure pairs may present liquidity concerns.
Trading: Forex currency pairs are traded in increments of 10,000 units, and there is nomor commission. However, the biaya of the trade is reflected in the bid/ask spread.

Forex trading can sound intimidating if it is the first time you are looking at a currency exchange chart. There is a lot of jargon involved that you need to understand before placing a trade. Nevertheless, the truth is that anybody can have access to trade currencies plus make a profit.

So, what is forex trading? It’s the discipline of exchanging international currencies, which are traded against one another in pairs. Transactions take place in the forex (also known as foreign exchange or FX) market.

When you travel abroad plus swap currency for local use, you’re already participating in the international forex market. But did you know that the foreign currency market trades a daily volume of more than $5.1 trillion? Maybe you are wondering what concepts you need to learn to trade FX like a pro. We’ve got your back! By the end of this guide, you will have a better understanding of the forex basics plus the ability to read forex charts.

Forex trading basics
Let’s begin the introduction to forex by decoding the basics.

What is a forex pair?
In forex trading, prices are presented in currency pairs. One example is EUR/USD. The left currency (EUR or Euro) is known as the base currency, plus the right currency (USD or US Dollars), the quoted currency. For example, a value of 1.0800 means that 1 Euro can be exchanged for 1.08 US Dollars.

Major currency pairs
Majors are pairs that contain the USD on one side. They are the most liquid plus frequently traded in the marketplace. These pairs include:

EUR/USD: Euro vs. US Dollar
USD/JPY: US Dollar vs. Japanese Yen
GBP/USD: British Pound vs. US Dollar
AUD/USD: Australian Dollar vs. US Dollar
USD/CHF: US Dollar vs. Swiss Franc
USD/CAD: US Dollar vs. Canadian Dollar
Cross-currency pairs
Crosses, or minors, are pairs that do not contain USD. The most active crosses known in the market involve the three different major currencies: EUR, JPY, plus GBP.

Exotic currency pairs
Exotics are pairs made up of one major currency with another from an emerging market. Examples of emerging currencies include Brazil (BRL), Hong Kong (HKD), Singapore (SGD), plus Mexico (MXN).

To keep things sederhana while getting started in forex, we suggest focusing your efforts on the majors plus a couple of cross-currency pairs.

How to read forex charts
Now, let’s move on to deciphering graphic information. In trading, the market is represented visually through charts. A forex chart is simply one that depicts the exchange rate between two currencies over time.

Introduction
The foreign exchange (forex) market is influenced by a complex interplay of economic, political, and financial factors. Unlike technical analysis, which focuses on historical price movements, fundamental analysis seeks to understand the underlying reasons for currency fluctuations. This approach is essential for long-term traders, investors, and policymakers who need to assess currency strength based on macroeconomic conditions.

In this article, we will explore three fundamental factors that significantly impact forex price movements: interest rate differentials, economic performance, and political stability. To illustrate these concepts, we will analyse the behaviour of the following currency pairs: USD/JPY for interest rate differentials, EUR/USD for economic performance, and USD/CAD for political issues. Additionally, we will examine how these factors have influenced major forex pairs since 2022.

Interest Rate Differentials: The Case of USD/JPY
Interest rates are one of the most significant drivers of forex prices. When a country offers higher interest rates compared to another, its currency typically appreciates because investors are drawn to higher returns on their investments. This principle, known as the interest rate differential, plays a crucial role in determining exchange rate movements. Traders often monitor central bank policies to anticipate changes in interest rates, as these shifts directly influence currency demand.

A prime example of how interest rate differentials affect forex is the USD/JPY pair. The United States and Japan have historically maintained different monetary policies. The US Federal Reserve (Fed) adjusts interest rates to control inflation and manage economic growth, while the Bank of Japan (BOJ) has kept rates near or below zero to stimulate economic activity and combat deflation.

Since 2022, the Fed has been raising interest rates to combat inflation. The federal funds rate increased from 0.25% in early 2022 to 5.50% by mid-2023 1. In contrast, the BOJ has maintained its negative interest rate policy at -0.10% as part of its ongoing stimulus measures 2. This growing interest rate differential has made the US dollar more attractive to investors, driving the USD/JPY exchange rate higher from around 115 in early 2022 to approximately 158 by January 2025 3.

When you begin to learn about forex trading, it can seem complex, especially with the vastness of the market. With over 7 trillion USD traded all every day by all types of market participants, there is a lot of potential for profit, but also risks to keep in mind.

For beginners looking to start out, it’s important to know that forex trading isn’t just about buying and selling currencies without aim or reason. Many factors, like world economies, political events, and market mood, play a big role in how currency pairs move, and this can influence trading strategies.

In this guide, we’ll break things down to help you get a solid first grasp of forex trading. You’ll learn the basics, explore the different types of markets, and follow a straightforward plan to get started.

What is forex trading?
Forex trading, or foreign exchange trading, is the process of buying and selling currencies on the world market. Unlike stock trading, which involves shares of companies, forex trading focuses on exchanging one currency for another.

This happens in pairs, such as EUR/USD, where euros are traded against US dollars. The value of these currencies fluctuates based on factors like interest rates, economic data, and geopolitical events.

Key points to know about forex trading:

Decentralised market. Forex trading occurs over the counter (OTC), meaning there’s nomor central exchange. Transactions are conducted electronically between parties worldwide.
Market hours. The forex market operates 24 hours a day, five days a week, beginning with the Asian markets on Monday and closing after the New York session on Friday.
Trading volume. It’s the largest financial market globally, with a daily trading volume exceeding $7 trillion, offering high liquidity and quick transactions.
Common currencies. The most traded currencies include the US dollar (USD), Euro (EUR), Japanese yen (JPY), and British pound (GBP), which are part of the major currency pairs.
Forex trading serves a few purposes:

Profit. Traders aim to make money from price movements by buying low and selling high or selling high and buying low.
Hedging. Businesses use forex to protect against unfavourable currency shifts, stabilising costs and reducing financial uncertainty.
While forex trading offers opportunities, it also comes with significant risks. The market’s size and world reach mean prices can change rapidly, influenced by economic indicators, policy decisions, and unexpected events. A solid understanding of these factors is crucial for anyone looking to start trading forex successfully.

Types of forex markets
Understanding the different types of forex markets is crucial for any beginner. Here’s a brief overview of some terms you may encounter when trading currencies:

1. Spot market
   The spot market is the most straightforward and common style of forex trading. Here, currencies are bought and sold for immediate delivery based on the current market price. Transactions are quick, usually settled within two business days, making it a favourite for traders who prefer immediate results.
2. Forward market
   In the forward market, traders agree to buy or sell currencies at a future date for a price agreed upon today. This style of market is typically used for hedging against future price fluctuations. Contracts in the forward market are customised between parties, allowing businesses to manage currency risk effectively.
3. Futures market
   The futures market is similar to the forward market but with standardised contracts that are traded on regulated exchanges. These contracts lock in the price of a currency at a set date in the future, providing a more structured environment compared to the forward market.
4. Options market
   The options market allows traders the right, but not the obligation, to buy or sell currencies at a specific price before a certain date. This market provides flexibility and is often used by more experienced traders to manage potential risks while keeping their options open.

These are the key types of forex markets you’ll encounter. Each serves different purposes, but as a beginner, it’s wise to focus on the spot market first.

Abstract
Technical analysis in the foreign exchange (Forex) market has yielded mixed results, particularly regarding its effectiveness over different holding periods in swing trading. This study addresses this gap by evaluating 497 technical trading rules across 10 currencies over 22 years (January 2000 to December 2022). Focusing on swing trading windows of 1-7 days, the research introduces the concept of an ‘optimal holding period,’ examining how price movements align with trading signals at varying time lags post-signal. The results demonstrate that technical trading rules significantly predict price movements in both developed and emerging market currencies, with emerging markets showing higher levels of predictability. Notably, simpel moving average (SMA) indicators perform most effectively for emerging market currencies, while oscillator-based strategies prove more successful for developed markets. These findings have practical implications for Forex traders employing short-term strategies, providing actionable insights for optimizing trade timing. Additionally, the study opens new avenues for future research on the role of technical analysis in enhancing trading performance in global currency markets.

1. Introduction
   The predictability of currency returns is a critical topic due to its potential implications for market efficiency and its practical value for investors. Historically, most asset pricing research has focused on understanding the equity market, where empirical studies have identified various anomalies that prompt investors to apply technical analysis techniques to outperform the market. Technical analysis, often called ‘Chartist analysis,’ involves generating trading recommendations based on time series properties of financial assets (Hsu et al., Citation2016). These recommendations can be either qualitative, relying on visual patterns, or quantitative, driven by mathematical models. Numerous studies have examined the predictability and profitability of technical trading rules across financial markets to identify successful trading strategies and test market efficiency. While technical analysis has been thoroughly explored in equity markets, its application to the foreign exchange (FX) market has received comparatively less attention (Park & Irwin, Citation2007).

The FX market is the world’s largest and most liquid financial market, with an average daily trading volume of $7.5 trillion in 2022, a significant increase from around $2 trillion in 2004 (Bank For International Settlements, Citation2022). Unlike the relatively more stable stock market, the FX market is characterized by high volatility, nonlinearity, and irregular price movements, making it one of the most complex financial environments (Ahmed et al., Citation2020). These unique features provide FX traders with a wide range of trading opportunities, particularly for short-term strategies, where technical analysis has proven popular. Surveys show that 30–40% of FX traders globally believe exchange rates are primarily driven by technical analysis, particularly over short-term horizons of up to six months (Menkhoff & Taylor, Citation2007). The strong reliance on technical analysis in FX trading reflects a deep-rooted behavior among professional traders, who often find it more effective in navigating the market’s intricacies.

What is forex trading?
The foreign exchange market (also known as forex or FX) is the international marketplace for trading currencies plus currency derivatives. Forex trading is the exchange of currencies; in simpel terms, it is the buying plus selling of one currency for another. Forex is the largest plus most liquid financial market in the world, with an average daily turnover of USD 7.5 trillion (as of 2022).

Every day, many currency conversions are made both for private plus commercial needs; for example, you exchange your travel funds for an overseas holiday, or a corporation exchanges currencies to pay for goods purchased or sold in another country.

It can also be used for hedging existing open investments in other currencies, with the idea of reducing potential losses by opening one or multiple forex trades that offset or even eradicate risk. Trading forex can also enable individuals to speculate on specific price movements of one currency against another.

Within a forex pair, you have the base currency plus the quoted currency, e.g., EUR/USD. When you trade forex, you’re looking at how much of the quoted currency (listed to the right of the /) you need to buy one unit of the base currency (listed to the left of the /).

This means when you trade forex, you’re simultaneously buying one currency plus selling another.

What are the trading hours for the forex market?
The foreign exchange market is open 24 hours a day, beginning Monday at 5:00am local Sydney time (Australian Eastern Standard Time) until Friday at 5:00pm Eastern Standard Time.

Global market convention for all currency pairs is that the value date of open spot positions rolls to the next business day at 5:00 pm Eastern Standard Time. The exception to this is New Zealand Dollar pairs, as those value dates roll forward at 7:00 am Auckland time from Monday to Friday.

All of this means that the local time of the value date rollover fluctuates throughout the year, depending on the currency pair, counterparty location, plus daylight savings time conventions.

The foreign exchange or forex market is the biggest plus most active financial market in the world. Every day, participants from all over the international engage in trillions worth of foreign exchange transactions.1 Events from all corners of the globe can immediately affect exchange rates plus currency values due to the international interconnectedness of the forex marketplace.

Key Takeaways
-Global events can immediately affect exchange rates plus currency values due to the interconnectedness of the forex marketplace
-Much of a currency’s value derives from a country’s economic strength, plus uncertainty in economic forecasts typically does not work in a currency’s favor
-Political turmoil, natural disasters, plus war are just a few events that can have a profound effect on the currency markets

Political Impact on Currency Prices
A political election—a common event in almost every nation—can have a large impact on a country’s currency. Elections can be viewed by traders as an isolated case of potential political instability plus uncertainty, which typically equates to greater volatility in the value of a country’s currency. In most situations, forex participants will simply keep an eye on pre-election polls to get a sense of what to expect plus see if there will be any changes at the top. That’s because a change in government can mean a change in ideology for the country’s citizens, which usually equates to a different approach to monetary or fiscal policy, each serving as big drivers of a currency’s value.

Additionally, political parties or individuals who are seen as more fiscally responsible or concerned with promoting economic growth tend to boost a currency’s relative value. For instance, an incumbent who is seen as a “pro economy” that is in danger of losing their position of power may lead to currency drops for fears of limited future economic growth plus predictability.

“Banks don’t have to beat the market to make money. They just have to beat their customers.”

So says Caspar Marney, a foreign exchange trader of about 20 years’ experience, including spells at major City banks such as UBS plus HSBC.

The former paratrooper has been playing those markets using his own statistical methods on behalf of private clients since 1999, plus gives lectures to others keen to learn how this impenetrable scene really works – which seems to be in a very different way to how most of us imagined.

On Tuesday, Bank of England governor Mark Carney admitted that allegations of exploitation in foreign exchange markets could prove to be a bigger scandal than the manipulation of Libor, following last year’s revelations that the £3tn-a-day global trade in currencies might have been rigged.

“A bank’s spot [currency trading] desk doesn’t generally beat the market,” Marney adds. “They extract profit from their orders. Orders are information. Every bit of data stacks the deck. And the closer you get to 4pm, the less the risk [of the price moving against you].”

That time is crucial in currency trading plus it is where investigators are said to be focussing. The market uses a benchmark price at 4pm – ironically called the “fix” or the “fixing” – which is the price many clients request, chiefly because it is considered to be transparent.

That seems clear enough, but how can a few traders manipulate “the fix” when the currency markets are so huge? The answer, according to Marney, is that the trade is rigged, but not in the way you might think.

Traders cannot really command prices to go higher or lower – as was ostensibly the case in the Libor rigging scandal when a few bankers manipulated benchmark interest rates. But in foreign exchange, the market is heavily biased towards the professionals sitting on trading desks, who gain an edge by automatically receiving data far superior to that used by outsiders.

Marney’s example involves a trader who gets a call from a major corporate client wanting to exchange US dollars for £600m in sterling. “That’s big, but not absurdly huge,” he says. “You perhaps get one of those a month but when you do, all other things being equal, you know the price is going up as you have an order for a market moving amount.”

Knowing that there is going to be a large order for dollars against the pound, the trader could buy some pounds for the bank’s own trading account (unlike in equity markets, this is not against the rules in foreign exchange). He might also stage the purchases of the £600m so that the bank is likely to pay less for the pounds than the price at 4pm – which is what the client ends up being charged for.

While Marney says he has nomer evidence of collusion between foreign exchange traders at different banks; he adds that many of them know each other as they have frequently worked for several banks. He speculates that if a few of them did speak plus discovered they all had large orders likely to push the market in one direction, it might prove too tempting an opportunity.

Even so, Marney has some sympathy with his foreign exchange colleagues – who have not been shown to have broken any laws. “A bank has nomer choice but to trade before 4pm – otherwise they’d lose money [as they’d be paying a higher price than at the fix],” he says. “Did the banks do something terrible? If you think that, then you have to ask yourself: how else should they execute [their trades]?”

Forex, short for “foreign exchange”, is the largest financial market globally, where currencies are bought and sold. The primary goal of forex trading is to profit from the exchange rate fluctuations between two currencies. Here’s a quick overview of key forex trading concepts:

Base Currency: The first currency in a currency pair.
Quote Currency: The second currency in a currency pair.
Exchange Rate: The price of one currency expressed in terms of another.
Pip: The smallest price movement in the forex market, typically the fourth decimal place for most currency pairs.
Understanding Currency Pairs
Currency pairs are at the core of forex trading. Each pair consists of two currencies, where one is bought (base currency) and the other is sold (quote currency). Popular currency pairs include EUR/USD (Euro/US Dollar), GBP/JPY (British Pound/Japanese Yen), and USD/JPY (US Dollar/Japanese Yen).

How The Forex Market Works
The forex market operates 24 hours a day, five days a week, across major financial centers worldwide. It’s divided into sessions: Asian, European, and North American, each with its trading hours. These sessions overlap, creating opportunities for traders.

Trading Terminology
Familiarize yourself with key forex trading terms:

Bid Price: The Price at Which You Can Sell a Currency Pair
The bid price in forex trading represents the maximum price a market participant is willing to pay for a specific currency pair at a given moment. It’s the essential component of the pricing structure in the forex market and plays a pivotal role in determining the value of a currency pair.
Key points about the bid price:

Sell Orders
The bid price is primarily associated with sell orders. If you want to sell a currency pair, you will receive the bid price for it.
Market Demand
The bid price reflects the level of demand for a currency pair among traders and investors. It represents the highest price that someone in the market is currently willing to pay.
Price Pair
In a currency pair, the bid price is paired with the ask price. For example, in the EUR/USD currency pair, the bid price represents the value of one euro in terms of U.S. dollars.
Spread
The difference between the bid price and the ask price is known as the spread. It’s essentially the ongkos of entering a trade and serves as the broker’s compensation.
Dynamic Nature
Bid prices change constantly as market conditions fluctuate. Traders can monitor bid price movements on forex charts to assess market sentiment and potential trade opportunities.
Order Execution
When a trader decides to sell a currency pair, the execution of the order occurs at or near the bid price, depending on market conditions and the jenis of order used.
Understanding the bid price is essential for traders as it influences their decision-making process, particularly when entering or exiting trades. Traders must consider both the bid and ask prices to determine the spread and its impact on trading costs.

Individual investors are increasingly trying their hand at foreign exchange trading, also known as forex or FX. No longer reserved for global corporations plus institutional traders, forex trading can diversify your portfolio, hedge against future weakening of the dollar, plus produce short- or long-term profits.

Read on to find out if forex should be part of your investment strategy in 2024. We’ll cover forex basics, including how currency trades work, what the risks are, plus how you can get started.

What Is Forex?
FX is currency exchange—that is, buying one currency with another. Foreign exchange is the largest plus most liquid financial market in the world.

If you’ve used an ATM machine internationally or purchased something from another country, you’ve participated in a currency exchange. The gist is that you use U.S. dollars to receive a different amount of another currency.

As you know, the mathematical translation of dollars to the other currency requires an exchange rate. Most exchange rates are floating, meaning they fluctuate up plus down. Those movements are driven by the supply plus demand in the global FX market. FX traders use those exchange rate shifts to realize gains or hedge against losses.

How Does Forex Work?
Forex trading is decentralized—currency trades transact across a global network of banks plus brokerages. This is different from public stock trading, which happens on an exchange like the New York Stock Exchange.

Currencies, like stocks, have identifying symbols or codes. The U.S. dollar is USD plus the euro is EUR. Other populer currencies include the British pound (GBP), the Canadian dollar (CAD), the New Zealand dollar (NZD), the Japanese yen (JPY) plus the Swiss franc (CHF). There are many more, but trading among these seven accounts for the majority of global FX activity.

Like many areas of finance, forex trading has its own lingo. Key terms to know include spot trading, currency pairs, lots, leverage plus pips.

Spot Trading
Spot trades are transactions in which the buyer immediately takes delivery of the asset. Currency spot trades use the current exchange rate (called the spot exchange rate) plus typically settle in two business days. This is the most straightforward model of currency trade.

Currency traders can also make forward or futures trades. In forward contracts, the buyer plus seller agree to an exchange at some future date, on negotiated terms. This is an over-the-counter instrument that’s typically non-transferable. Futures FX contracts, on the other hand, are standardized plus can be publicly traded.

Currency Pairs
Currencies trade in pairs, with a pair representing the exchange rate between the two components. EUR/USD, for example, references the relationship between the euro plus the U.S. dollar. The first currency in a pair—EUR in our example—is the base currency. The second currency is the quote currency.

Near the end of June, the EUR/USD exchange rate was around 1.09. This means that 1 unit of the base currency can buy 1.09 units of the quote currency. More specifically, €1 can buy $1.09.

Lots And Leverage
When you’re traveling, you can exchange money in small increments at any local bank or travel center. FX trades are not as flexible with respect to the transaction amount. Currencies trade in lots, mini lots or micro lots. These are 100,000, 10,000 plus 1,000 units of currency, respectively.

You don’t need €100,000 or even €1,000 for a single trade, however. This is because forex brokers typically allow for margin trading. So you can borrow funds from the broker to fund a portion of the transaction.

In the U.S., leverage on currency transactions is capped at 50:1 for major currencies plus 20:1 for less populer currencies. Said another way, you’d only need 2% or 5% of your own funding to make a trade. The exact percentage depends on the currency pair you’re buying plus your broker’s margin rules.

As with buying stocks on margin, you’re still on the hook for losses, even if they exceed the cash you put into the transaction.