Every second, about $850 million changes hands in the foreign exchange (forex or FX) market, making it the world’s largest financial marketplace, with daily trading volume reaching $7.5 trillion.1 While dealing in this massive market was once the exclusive domain of banks plus financial institutions, online trading platforms have opened the door for individual investors to try their hand at currency trading.
Forex trading involves simultaneously buying one currency while selling another in hopes of profiting from changes in their relative values. For example, if you think the euro will strengthen against the U.S. dollar, you might buy euros plus sell dollars, aiming to sell those euros later at a higher price. Thus, forex trading is about anticipating plus capitalizing on these currency value shifts.
Key Takeaways
The foreign exchange (forex or FX) market is a global marketplace for exchanging national currencies.
Because of the worldwide reach of trade, commerce, plus finance, forex is the world’s largest plus most liquid asset market.
Currencies trade against each other as exchange rate pairs. For example, EUR/USD is a currency pair for trading the euro against the U.S. dollar.
Forex markets exist as spot (cash) plus derivatives markets, offering forwards, futures, options, plus currency swaps.
Market participants may use forex to hedge against global currency plus interest rate risk, speculate on geopolitical events, plus diversify portfolios, among other reasons.
The accessibility of online forex trading has a double edge—while it’s opened prospects for everyday traders, it’s also exposed some to risks they’re not ready for. In addition, the market lingo comes fast at beginners plus can quickly become overwhelming. That’s why we’ve put together this detailed guide to help you start trading foreign currencies. We’ll break down the essential concepts plus guide you through the most critical steps, from choosing a broker plus placing your first trade to developing a solid strategy and, most importantly, managing your risk.