Foreign Exchange Trading: Your Comprehensive Guide to Understanding Forex and Getting Started from Scratch

The currency market witnesses massive daily movements that surpass any other financial market on Earth. According to the latest statistics for 2025, the daily trading volume in the forex market exceeds $9.6 trillion, a staggering figure that reflects the importance of currency trading in the global economy. Every day, millions of participants—individuals, companies, and banks worldwide—deal with currencies, seeking profit opportunities or covering their commercial needs.

You may have already participated in this market without realizing it—when you convert money before traveling or pay a bill in a foreign currency, you are trading in the forex market directly.

What is the truth about the currency trading market?

Forex is not just an ordinary market; it is a complex global system that connects huge banks, financial institutions, and individual traders. Unlike traditional stock markets, there is no central trading place; instead, an enormous electronic network links participants around the world.

Trading in forex means buying one currency and selling another simultaneously, aiming to benefit from ongoing exchange rate fluctuations. When you look at a pair like EUR/USD, you assess the strength of the euro against the US dollar— the first is called the base currency, and the second is the quote currency.

Why is forex the largest and strongest?

If you compare the trading volume in forex with that of stock and commodity markets combined, you’ll find that forex surpasses them by a huge margin. This dominance stems from the very nature of the global economy—every international trade requires currency conversion, and cross-border investments necessitate practical exchanges.

What also characterizes this market is its continuous availability: it operates 24 hours a day, five days a week, thanks to the succession of trading sessions in major financial centers—Sydney, Tokyo, London, and New York. This means traders always find an active market to deal with at any time.

How does the market work in practice?

Forex trading is based on a simple principle: a currency cannot be evaluated alone; it must be compared to another currency. Each currency pair represents a relationship between the strength of one economy and the weakness of another.

When you expect the euro to rise against the dollar, you buy EUR/USD. If you anticipate it will fall, you do the opposite—sell. A successful trader is one who guesses the market direction based on various economic and political factors.

Types of Forex Pairs

The market is divided into three main categories:

Major pairs (Majors) include the strongest and most traded currencies: EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD. These pairs offer the highest liquidity and the narrowest spreads (spread).

Minor pairs (Minors) do not always include the US dollar, such as EUR/GBP, EUR/CHF, GBP/JPY. They have good liquidity but wider spreads.

Exotic pairs (Exotics) combine a strong currency with a currency from an emerging economy, like USD/MXN or USD/THB. They feature higher volatility and greater risks.

Basic terms you should know

Spread: The difference between the bid and ask price. If the price is 1.1050 to buy and 1.1048 to sell, the spread is 2 pips. The provider profits from this difference.

Lot: The unit of measurement for trade size. One lot equals 100,000 units of the base currency. Beginners usually start with 0.01 lots (Micro Lot).

Pip: The smallest price movement, usually the fourth decimal place. A move from 1.1000 to 1.1001 equals 1 pip.

Leverage: A powerful tool that allows you to control a larger capital with a smaller amount. With 1:100 leverage and a $100 deposit, you can trade $10,000. But it also amplifies losses.

Margin: The amount required as collateral to open a position. If you want to open a $1,000 position with 1:20 leverage, you need only $50 as margin.

What moves currency prices?

Forex is not random—there are clear factors controlling price movements:

Central bank decisions: When a central bank raises interest rates, the currency becomes more attractive to foreign investors, increasing demand and raising its value. In 2022, the US Federal Reserve sharply increased rates to combat inflation, leading to a significant rise in the dollar.

Economic growth and inflation: A rapidly growing strong economy attracts foreign investments, strengthening its currency. High inflation weakens the currency because it reduces its purchasing power.

Political and geopolitical developments: During times of instability, investors turn to “safe-haven” currencies like the dollar and Japanese yen. During the COVID-19 pandemic in 2020, the market experienced significant turmoil, and the dollar and yen benefited from safe-haven status.

Direct intervention: Sometimes, central banks intervene directly. In the Plaza Accord of 1985, major countries cooperated to devalue the dollar, achieving tangible success.

Trading style that suits you: long-term or short-term?

Traders choose between two main styles based on their personalities and goals:

Long-term trading: Holding positions for weeks, months, or even years. Focuses on fundamental economic factors and major trends. This style requires less daily monitoring and reduces psychological pressure.

Short-term trading: Opening and closing trades within minutes, hours, or days. Benefits from small price movements and daily volatility. Requires continuous monitoring and advanced technical analysis tools.

Within short-term trading, there are different strategies:

• Scalping: Opening and closing within seconds or minutes
• Day trading: All trades opened and closed within the same day
• Swing trading: Holding for several days to capitalize on medium-term waves

Bright side and dark side

Advantages:

• The market is open 24 hours, offering flexibility
• Relatively small capital needed to start
• Massive liquidity allows quick execution of trades
• Narrow spreads in major pairs
• Opportunities to profit from upward and downward trends

Risks:

• Capital can be lost quickly, especially with leverage
• The market is highly volatile and affected by sudden news
• Requires technical knowledge and real experience
• Managing open trades overnight can be exhausting

Best times to trade

The market is always open, but activity varies by session:

Sydney session: Relatively low activity Tokyo session: Moderate activity London session: Very high activity New York session: The most active Overlap times: The best times, especially when London and New York sessions overlap

During these periods, liquidity increases, and prices move faster, providing better opportunities for traders.

Tools of analysis to help you

Don’t trade randomly—use technical tools:

Moving Averages: Help you see the overall market trend clearly

RSI (Relative Strength Index): Tells you if the price is overbought (Overbought) or oversold (Oversold)

MACD: Shows trend direction and potential reversals

Bollinger Bands: Reveal volatility levels

Support and Resistance levels: Specific prices where the market tends to pause or reverse

Practical steps to get started

1. Open an account: Choose a reputable broker with strong regulation and good tools
2. Start with a demo account: Test your strategies with virtual capital without real risk
3. Set a clear plan: Define your profit target, loss limit, and preferred currency pairs
4. Risk management: Use stop-loss and take-profit orders
5. Continuous learning: Follow economic news and analyses
6. Periodic evaluation: After each trade, analyze what worked and what didn’t

Golden tips for beginners

• Don’t rush: Big profits come with time and experience
• Control your emotions: Don’t recover losses recklessly, and avoid greed
• Limited diversification: Don’t trade too many pairs at once initially
• Quantity over quality: It’s not about opening many trades, but correct ones
• Record and note: Keep details of each trade to learn better

Summary

Forex is a giant market offering real profit opportunities, but it requires seriousness and continuous learning. It’s not a place for playing or gambling but an investment field that demands deep understanding of economics and strict discipline.

Whether you choose long-term or short-term trading, forex provides you with tools and great opportunities. The key is to start steadily, benefit from demo accounts, and not risk capital you can’t afford to lose. Over time, with practice and learning, you can develop your own strategy and achieve consistent results in this dynamic market.