What is forex trading?

Forex trading, or foreign exchange trading, is the process of buying and selling currencies on the global market. Unlike stock trading, which involves shares of companies, forex trading focuses on exchanging one currency for another.

This happens in pairs, such as EUR/USD, where euros are traded against US dollars. The value of these currencies fluctuates based on factors like interest rates, economic data, and geopolitical events.

Key points to know about forex trading:

• Decentralised market. Forex trading occurs over the counter (OTC), meaning there’s no central exchange. Transactions are conducted electronically between parties worldwide.
• Market hours. The forex market operates 24 hours a day, five days a week, beginning with the Asian markets on Monday and closing after the New York session on Friday.
• Trading volume. It’s the largest financial market globally, with a daily trading volume exceeding $7 trillion, offering high liquidity and quick transactions.
• Common currencies. The most traded currencies include the US dollar (USD), Euro (EUR), Japanese yen (JPY), and British pound (GBP), which are part of the major currency pairs.

Forex trading serves a few purposes:

• Profit. Traders aim to make money from price movements by buying low and selling high or selling high and buying low.
• Hedging. Businesses use forex to protect against unfavourable currency shifts, stabilising costs and reducing financial uncertainty.

While forex trading offers opportunities, it also comes with significant risks. The market’s size and global reach mean prices can change rapidly, influenced by economic indicators, policy decisions, and unexpected events. A solid understanding of these factors is crucial for anyone looking to start trading forex successfully.