The comprehensive guide to understanding the Forex markets and how to invest in them for beginners

Introduction to the Global Currency Market

Every time you decide to transfer money before an international trip or pay for a service in a foreign currency, you are essentially participating in one of the largest financial markets worldwide. The currency trading market is an inevitable meeting point between banking institutions, multinational corporations, and individual investors from around the globe.

Recent statistics show that the daily trading volume in this market reaches approximately $9.6 trillion according to the latest data recorded in April 2025. This enormous figure far exceeds the total trading volume of all global stock markets combined. The reason lies in the global nature of currencies and the continuous exchange role in the international economy.

What is Forex Trading?

Forex simply is the foreign exchange market, where currencies are continuously exchanged between individuals, banks, companies, and governments worldwide. When you trade in this market, you buy one currency and sell another at the same time, aiming to benefit from changes in exchange rates between them.

Trading always occurs through currency pairs such as EUR/USD or USD/JPY. In each pair, the first currency is called the “base currency”, while the second is known as the “quote currency”. The displayed price tells you how many units of the quote currency you need to buy one unit of the base currency.

What makes this market unique is that it operates without a single centralized exchange, but through a global electronic network connecting banks and financial institutions. Trading is 24 hours a day, 5 days a week, making it accessible to traders across different time zones.

Basic Facts About the Forex Market

A colossal market with no competition: In terms of liquidity, activity, and trading volume, there is no other financial market that rivals it globally.

You are already trading unknowingly: Any currency exchange you do while traveling is an actual participation in this massive market.

Pairs are the foundation of every trade: Currencies are never bought or sold alone, always against another currency. When you see USD/CAD, you are comparing the value of the US dollar to the Canadian dollar.

Daily renewed opportunities: Continuous fluctuations and massive liquidity provide daily opportunities for traders, especially those relying on short-term strategies.

No single controlling entity: The decentralized system means there is no single exchange like stock exchanges, but a global network of electronically connected institutions.

Continuous activity without stopping: Thanks to the overlapping sessions of major financial centers (Sydney, Tokyo, London, New York), the market remains active all the time.

How the Currency Exchange Market Works

The market relies on a simple but strong principle: no currency can be valued except in comparison to another. That’s why all transactions involve currency pairs.

Trading decisions are based on expected movements of pairs:

• Buy means you expect the base currency to strengthen against the quote currency
• Sell means you expect the base currency to weaken

Banks and major institutions historically monopolized this market, but it has now become more open. Individual traders can now participate through specialized brokerage firms and take advantage of available investment opportunities.

Main Categories of Major Currency Pairs

Major pairs (Majors): Include the most traded currencies worldwide and represent strong economies. They feature the highest liquidity and narrowest spreads:

• 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

Minor pairs (Minors): Also called cross pairs because they do not include the US dollar directly. Less active than major pairs, with wider spreads:

• EUR/GBP – Euro vs. British Pound
• EUR/CHF – Euro vs. Swiss Franc
• GBP/JPY – British Pound vs. Japanese Yen

Exotic pairs (Exotics): Combine strong currencies with emerging market currencies. Characterized by higher volatility and wider spreads, suitable for experienced traders:

• USD/MXN – US Dollar vs. Mexican Peso
• USD/THB – US Dollar vs. Thai Baht

Essential Terms You Should Know

Spread: The difference between the bid and ask price. The smaller, the better for traders. Example: If the bid is 1.1050 and the ask is 1.1048, the spread = 2 pips.

Lot: A unit of trade volume, divided into types (standard, mini, micro) to facilitate risk management. Example: A 0.01 lot trade means a small size suitable for beginners.

Pip: A unit measuring price change, usually the movement in the fourth decimal place. Example: Moving from 1.1000 to 1.1001 equals 1 pip.

Leverage: A tool that allows increasing the size of your trade using a small part of your capital (margin). Amplifies both profits and losses. Example: With $100 and 1:100 leverage, you can trade $10,000.

Margin: A small amount used as collateral to open leveraged trades. It allows increasing trading volume but also raises risk.

Trading Hours and Key Sessions

The forex market operates almost nonstop: 24 hours a day, 5 days a week. Trading effectively begins with the opening of the Sydney session on Monday morning and continues until the New York session closes on Friday afternoon.

Session overlaps feature the highest activity and liquidity. For example, the overlap between London and New York sessions sees the highest trading volumes. The start time of the London session is also a good time for trading.

Conversely, the Asia (mid-session) session experiences relatively lower activity, which may reduce trading opportunities.

Main Factors Moving Prices

Monetary policies: Central bank decisions on interest rates directly impact currencies. Raising rates makes a currency more attractive, while lowering them reduces demand.

Inflation and economic growth: High inflation weakens a currency, while strong economic growth attracts investments and strengthens it.

Government intervention: Central banks sometimes intervene directly in the market to support or weaken their currency to achieve economic goals.

Geopolitical factors: Unstable political events drive investors to seek “safe-haven” currencies like the dollar and yen.

The Two Main Types of Trading

Long-term trading: Involves holding positions for weeks, months, or even years. Focuses on fundamental analysis (economic growth, central bank policies) rather than daily movements. Requires patience and discipline but reduces stress and allows less monitoring.

Short-term trading: Focuses on price movements over minutes, hours, or days. Relies on technical analysis and indicators to capitalize on ongoing volatility. Offers quick profit opportunities but demands constant monitoring and higher psychological pressure.

Main Benefits of Trading

✅ 24/7 Trading: 24/5 means full flexibility to choose trading times that suit your schedule.

✅ Low Capital Requirements: You can start with a small capital thanks to leverage and narrow spreads.

✅ High Liquidity: The most liquid market globally allows for quick order execution without impacting prices.

✅ Diverse Profit Opportunities: Whether seeking quick gains or long-term investments, the market offers options.

✅ Relatively Low Fees: Most brokers rely on spreads rather than high commissions.

Challenges and Risks

❌ High Risks: Complete loss of capital is possible, especially with leverage.

❌ Learning Difficulty: Requires advanced knowledge of technical and fundamental analysis and risk management.

❌ Rapid Volatility: Sudden price movements can turn a winner into a loser quickly.

❌ Continuous Exposure: The 24/5 open market means potential losses even during sleep.

Practical Steps to Get Started

1. Learn the basics: Before any step, understand how pairs, indicators, and influencing factors work.

2. Create a trading plan: Define your capital, trade sizes, preferred pairs, and financial goals.

3. Use a demo account: Most brokers offer virtual funded accounts to practice strategies without real risks.

4. Start with small amounts: Even after switching to a real account, begin with a small balance and increase gradually.

5. Use risk management tools: Stop-loss and take-profit orders are essential to protect your capital.

6. Monitor economic news: Major economic events directly influence price movements.

Popular Trading Strategies

Scalping (Scalping): Opening and closing trades within minutes or seconds to achieve small points.

Day Trading (Day Trading): Opening and closing trades within the same day to avoid holding risks.

Swing Trading (Swing Trading): Holding trades for days or weeks to benefit from medium-term trends.

Trend Following (Trend Following): Buying in an uptrend and selling in a downtrend using indicators.

Basic Technical Indicators

Moving Averages: Help you see the overall trend and reduce the impact of fluctuations.

Relative Strength Index (RSI): Shows if the price is overbought or oversold.

MACD Indicator: Indicates trend direction and potential market reversals.

Bollinger Bands: Reveal volatility levels and potential breakout points.

Support and Resistance Levels: Critical prices where the market typically reverses.

Golden Tips for New Traders

💡 Learn before risking: Deep understanding is better than rushing in.

💡 Stick to your plan: Don’t let losses or greed control your decisions.

💡 Manage risk: Don’t risk more than 1-2% of your capital on a single trade.

💡 Continuous learning: The market constantly changes; following news and analysis is essential.

💡 Patience and discipline: Sustainable profits come from strategy and discipline, not luck.

Summary

The forex trading market represents one of the greatest financial opportunities in the world, but it requires deep understanding and careful planning. The market’s enormous size (trillions of dollars daily), high liquidity, and continuous availability (24/5) make it attractive to traders of all levels.

Whether seeking short-term gains or long-term investments, the market offers diverse tools and strategies. But success doesn’t come from luck; it stems from continuous learning, prudent risk management, and sticking to a clear trading plan.

Remember, every successful trader started where you are now, and with patience, practice, and ongoing improvement, you can build a profitable and relatively safe investment path in this dynamic and exciting market.