Foreign exchange (forex or FX) trading involves buying one currency and selling another while attempting to profit from the trade. According to the latest reliable data from 2022, global daily trading was $7.5 trillion, making forex trading the largest financial market in the world, dwarfing even the global stock market.
Trading currencies online has become far more accessible in the last decade, attracting droves of newer traders wanting a piece of the action.
In forex markets, currencies trade against each other as exchange rate pairs. For example, the EUR/USD would be a currency pair for trading the euro against the U.S. dollar. This is straightforward, but the market lingo comes fast at beginners and can quickly become overwhelming. Assets traded in FX include currencies, contracts for difference (CFDs), indexes, commodities, spreads, and cryptocurrencies. There are also forex spot and derivatives markets for forwards, futures, options, and currency swaps, all to speculate or hedge on forex prices. If all this weren't enough, jargon like "pips," "lots," and "leverage" mean that, without a good introduction, newer traders can quickly feel they are in over their heads.
That's why we've put together this detailed guide to getting you started trading foreign currencies the right way. We'll break down the essential concepts and guide you through the most critical steps, from choosing a broker and placing your first trade to developing a solid strategy and, most importantly, managing your risk.
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, and finance, forex markets combine to be the world's largest and most liquid asset markets.
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) and derivatives markets, offering forwards, futures, options, and currency swaps.
Some market participants use forex to hedge against international currency and interest rate risk, speculate on geopolitical events, and diversify portfolios, among other reasons.