Your comprehensive guide to understanding the forex market and how to invest in it

Introduction to the Forex Market

Whenever you convert your currency before an international trip, or pay for a service with a foreign currency, you are already participating in the world’s largest financial market. This is Forex - the place where investors, banks, companies, and individuals trade currencies nonstop.

This market is truly astonishing in terms of size and activity. In April 2025, the average daily trading volume reached 9.6 trillion dollars - a figure far exceeding the total traded in global stock markets combined. This massive volume reflects the global nature of currencies and the international economy’s reliance on continuous currency exchange.

What is Forex Trading?

In its simplest definition, Forex means buying one currency and selling another at the same time, aiming to profit from exchange rate movements. But that’s not all - when you trade Forex, you are always dealing with a currency pair like EUR/USD or USD/JPY.

In each pair:

• Base currency (First): The currency you want to buy or sell
• Quote currency (Second): The measure that determines how much you need to buy one unit of the base currency

The market operates without a central exchange. Instead, there is a global electronic network of banks and institutions communicating with each other through what is known as “Over-the-Counter” (OTC) trading. Trading continues 24 hours a day, five days a week, driven by trading sessions switching between major financial centers: Sydney, Tokyo, London, and New York.

Types of Forex Pairs and Their Characteristics

Not all currency pairs are equal. They are divided into three categories based on liquidity and volatility:

Major Pairs - The primary choice for beginners

Includes the most traded currencies worldwide representing giant economies:

• EUR/USD (Euro vs. Dollar)
• USD/JPY (Dollar vs. Yen)
• GBP/USD (Pound vs. Dollar)
• AUD/USD, USD/CHF, USD/CAD

These pairs have the highest liquidity and the narrowest spreads, making them relatively safe for beginners.

Minor Pairs - For experienced traders

Do not include the US dollar, such as EUR/GBP, EUR/CHF, GBP/JPY. They feature wider spreads and lower liquidity but offer diverse opportunities.

Exotic Pairs - For risk-takers

Combine a strong currency with one from an emerging economy, such as USD/MXN and USD/THB. They are characterized by high volatility and very wide spreads.

Essential Terms to Know

Spread

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

Lot

A unit of measurement for trade size. There is the standard lot, mini lot, and micro lot. Trading 0.01 lot is perfect for beginners.

Pip

The smallest movement in a currency price, usually the fourth decimal place. Example: EUR/USD moves from 1.1000 to 1.1001 = a movement of 1 pip.

Leverage and Margin

With just a $100 deposit and 1:100 leverage, you can trade with $10,000. But beware - leverage amplifies both profits and losses. Margin is the amount required to open and maintain a position.

Main Factors Moving Forex Prices

Central Bank Policies

When the US Federal Reserve raised interest rates in 2022 to combat inflation, the dollar rose significantly against the euro and yen.

Economic Performance and Inflation

Slow growth or rising inflation weakens a currency. In 2015, when China announced economic slowdown, the central bank devalued the yuan, impacting global markets.

Direct Government Intervention

Some governments intervene to change their currency values for economic goals. The Plaza Accord of 1985 between the US, Japan, Germany, France, and the UK is a famous example.

Political and Global Crises

Turbulent events drive investors to seek safe havens. During the COVID-19 pandemic, everyone turned to the dollar and Japanese yen, while emerging market currencies declined.

Ideal Trading Times

The market opens on Monday from Sydney (at 5 AM local time) and closes on Friday from New York (at 5 PM). But the golden periods are:

• Overlap of London and New York sessions: highest liquidity and price movement
• Start of London session: good activity
• Mid Asia session: relatively less movement

At 5 PM New York time, a “Rollover” (Rollover) occurs, where settlement dates are renewed.

Choosing a Trading Style

Long-term Trading

Holding positions for weeks, months, or even years. Based on fundamental analysis and monitoring economic and central bank news. Less psychological pressure, but requires patience.

Short-term Trading

Positions from minutes to a few days. Uses technical analysis and indicators. Offers quick profit opportunities but requires continuous monitoring and high technical skills.

Effective Strategies for Success

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

Day Trading: Opening and closing trades within the same day, avoiding overnight risks.

Swing Trading: Holding positions for several days or weeks to benefit from medium-term trends.

Trend Following: Selling during declines and buying during rises, using indicators like moving averages.

Basic Technical Indicators

• Moving Averages: Reveal the overall trend
• Relative Strength Index (RSI): Shows if the price is overbought or oversold
• MACD Indicator: Confirms trend and potential reversals
• Bollinger Bands: Detect volatility and breakout points
• Support and Resistance Levels: Critical prices for entry and exit

Real Advantages of Forex

✅ 24/5 Trading: Full flexibility in choosing trading times ✅ Low Capital: Start with a small capital thanks to leverage ✅ Very High Liquidity: Execute large trades without significantly affecting the price ✅ Various Opportunities: Profit from both short and long trades ✅ Narrow Spreads: Low trading costs

Challenges to Face

❌ Very High Risks: Possibility of losing all your capital ❌ Steep Learning Curve: Requires deep knowledge of analysis and economics ❌ Continuous Volatility: Prices change rapidly ❌ 24-Hour Management: The market never sleeps, and trades are exposed to surprises at any time

Practical Steps to Get Started

1. Learn the Basics: Study currency pairs and influencing factors
2. Open a Demo Account: Practice with $50,000 virtual without risk
3. Develop a Clear Strategy: Set your goals and risk level
4. Start Small: When moving to a real account, begin with limited capital
5. Manage Risks Rigorously: Use stop-loss orders
6. Monitor and Evaluate: Learn from every trade, adjust your strategies
7. Follow Developments: Economic and political news are very important

Golden Tips for Success

💡 Continuous Learning: The market constantly changes, stay updated 💡 Discipline: Follow your plan and don’t let emotions control you 💡 Risk Management: Don’t risk more than 1-2% of your capital on a single trade 💡 Patience: Big profits come over time, not overnight 💡 Control Greed and Fear: They are the worst enemies of traders

Summary

Forex is not just a currency exchange market, but a real window into understanding the global economy. With its enormous liquidity and 24-hour availability, it offers unlimited profit opportunities - but only for those who understand the market and control their emotions.

Whether you are a beginner seeking additional income or a professional targeting big profits, the key lies in continuous learning, careful planning, and risk management. Start with a demo account, develop your skills, and test your strategies before risking real capital. That way, your journey in Forex will be safe and profitable.