Forex: Your comprehensive guide to understanding the world's largest financial market

In the world of finance and investment, the Forex market holds a unique position unmatched anywhere else. It is not just a platform for currency exchange, but a massive economic system connecting governments, banks, corporations, and individuals around the globe. Whenever you decide to transfer your money before traveling, or pay in a foreign currency, you are directly participating in this nonstop market.

The astonishing market size and limitless liquidity

If you wonder about the volume of forex trading, the answer will surely surprise you. The average daily trading volume in the Foreign Exchange Market reached 9.6 trillion dollars according to the latest statistics recorded in April 2025. This figure far exceeds all global stock markets combined.

This exceptional volume is due to the global nature of currencies and the increasing reliance of the international economy on continuous exchange. High liquidity provides traders with exceptional flexibility, allowing large transactions to be executed without significantly impacting prices.

What exactly is forex?

The word “Forex” is an abbreviation of Foreign Exchange. It is the global market where currencies are traded nonstop among individuals, financial institutions, and governments. Unlike traditional stock markets, there is no central exchange gathering traders in one place. Instead, banks and large financial companies communicate electronically over a global network in what is known as Over-the-Counter (OTC) trading.

When you trade in forex, you are always dealing with a currency pair like EUR/USD or USD/JPY. The first currency is called the “base currency,” and the second is the “quote currency.” The quoted price tells you how many units of the quote currency you need to buy one unit of the base currency.

How the market works: from buying to selling

Forex trading relies on a simple principle: you do not buy a currency separately, but always buy one and sell another at the same time. If you predict that the euro will rise against the dollar, you buy the EUR/USD pair. If you expect it to fall, you sell it.

This comparative nature makes the market based on the strength of one currency against the weakness of another. An increase in one currency necessarily implies a relative decline of the other in the pair.

Types of currency pairs and their differences

Currency pairs are divided into three main categories, differing in liquidity and activity:

Major pairs (Majors): The most traded globally, representing strong economies. Includes EUR/USD, USD/JPY, GBP/USD, USD/CHF. They feature high liquidity and relatively narrow spreads, making them the first choice for beginners.

Minor pairs (Minors): Do not involve the US dollar directly, such as EUR/GBP and EUR/CHF. Liquidity is lower than major pairs, and spreads are wider, but they offer additional opportunities for experienced traders.

Exotic pairs (Exotics): Combine a strong currency with another from a developing economy, such as USD/MXN and GBP/PLN. Characterized by volatile swings and wide spreads, suitable for those willing to take higher risks.

Essential terms you should know

Spread (Spread): The difference between the bid and ask price. If the bid is 1.1050 and the ask is 1.1048, the spread equals 2 pips.

Lot (Lot): A unit of measure for trade size. The standard lot equals 100,000 units of the base currency, while mini and micro lots allow smaller sizes for beginners.

Pip (Pip): The smallest price movement in forex, representing the fourth decimal place. Moving from 1.1000 to 1.1001 equals 1 pip.

Leverage (Leverage): A powerful tool that allows increasing trading volume using a small portion of capital. With 1:100 leverage, you can trade $10,000 with only $100 deposit. But beware: amplifying profits also amplifies losses.

Margin (Margin): The amount required in your account to open and manage a leveraged position. Maintenance margin ensures the position remains open without forced closure.

Global trading hours table

A unique feature of forex is that it operates 24 hours a day, 5 days a week. Trading begins from the Sydney session on Monday morning, then moves to Tokyo, followed by London, and ends with New York on Friday evening.

The best trading times are overlap periods, especially the London-New York overlap, where liquidity increases and prices move more rapidly. Conversely, the Asian session, especially mid-session, experiences relatively less movement.

Economic factors influencing prices

Currency prices are not random. Specific economic and political factors direct their movement:

Monetary policies: Central bank decisions on interest rates have a direct impact. Raising rates attracts foreign investors and strengthens the currency, while lowering rates weakens it. In 2022, the Federal Reserve raised interest rates sharply, causing the dollar to rise significantly against the euro and yen.

Economic growth and inflation: A strong economy growing rapidly attracts investments and strengthens the currency, while high inflation weakens purchasing power.

Geopolitical events: International tensions push investors toward safe havens. During crises, demand for the dollar and Japanese yen increases, while emerging market currencies decline.

Government intervention: Central banks sometimes intervene directly to support or weaken their currency. The “Plaza Accord” of 1985 is a prime example, when five countries cooperated to devalue the dollar.

Trading strategies: from short to long term

Traders choose different strategies based on their goals:

Long-term trading: Holding positions for weeks or months, based on fundamental analysis and major economic trends. Suitable for those seeking peace of mind and stable returns.

Short-term trading: Opening and closing positions within the day or minutes (Scalping), to capitalize on momentary fluctuations. Requires constant monitoring and intensive technical analysis.

Swing trading: Holding positions for several days or weeks, balancing between daily trading speed and long-term patience.

Basic technical indicators

Success in forex depends on analytical tools:

• Moving Averages: Reveal overall trend and reduce daily volatility noise
• RSI (Relative Strength Index) (RSI): Shows if the price is overbought or oversold
• MACD: Indicates trend and potential reversals
• Bollinger Bands: Reveal volatility levels and potential breakouts
• Support and Resistance levels: Critical prices where the market tends to pause or reverse

The real advantages of forex

✅ Continuous trading: 24/5 means genuine flexibility in choosing trading times

✅ Low capital requirements: You can start with very small capital, and spreads are lower than traditional commissions

✅ Unstoppable liquidity: Large transactions without significant price impact, leading to better execution

✅ Diverse opportunities: Whether you prefer short or long trading, the market offers opportunities

Challenges that cannot be ignored

❌ High risks: Complete loss of capital possible due to rapid volatility and leverage

❌ Steep learning curve: Requires deep understanding of technical and fundamental analysis and risk management

❌ Extreme volatility: Sudden price movements can wipe out your account unexpectedly

❌ Full-time management: The market is always active, and trades can move while you are away

Practical steps to get started

1. Choose a reliable platform: Find a regulated and secure broker, offering powerful tools and low costs

2. Open a demo account first: Practice with virtual funds before risking your real money

3. Set a clear plan: Define capital, trade sizes, risk ratios, and goals

4. Study currency pairs: Pick one or two pairs initially, and deepen your understanding

5. Use risk management: Always set stop-loss and take-profit orders, and limit risk to 1-2%

6. Monitor and evaluate: Follow markets, analyze results, and continuously adjust your strategies

7. Keep learning: Forex is a live market; stay updated with economic news and renewed analyses

Golden tips for beginners

💡 Don’t rush: Understanding the market before investing prevents severe losses

💡 Discipline first: Follow your plan even if greed or fear tempt you

💡 Manage risks wisely: Never risk more than you can afford to lose

💡 Patience pays off: Consistent small profits are better than extreme gains

💡 Avoid excessive leverage: Even if available, caution is better than regret

Summary

The Forex market is not a dream of quick wealth but a complex system that opens its doors to those who understand and respect it. The huge market volume (9.6 trillion dollars daily) and its high liquidity provide real opportunities, but risks are real too.

Success in forex requires three elements: continuous education, a solid plan, and psychological discipline. Whether you are a beginner seeking extra income or an experienced trader aiming to diversify your portfolio, forex offers a broad field.

Remember: forex is not gambling. It is science, economics, and strategy. Learn it well, invest wisely, and you may find the opportunities you seek.