Online Forex Trading

This is a market where one currency is exchanged for another.

Online Forex Trading: What You Need to Know to Start Trading

If you want to master the basics and even gain a deeper understanding of Forex trading, you have come to the right place! In this guide, we will discuss all the important aspects that are necessary for you to successfully and safely start trading Forex with an effective strategy. First, we will explain what Forex trading is and how it works. Next, we will introduce you to the basic terms that you will need to know to comfortably trade foreign exchange. After that, we will cover the calculations that you will use in your daily trading practice. Our guide will help you arm yourself with the knowledge and tools that you need to confidently start in the world of Forex. If you already have trading experience, feel free to skip to the sections that interest you by clicking on the headings below.

What is Forex trading and how does it work?

Forex is a market where one currency is exchanged for another. With a daily trading volume of $6.6 trillion, Forex is one of the largest markets in the world, significantly larger than the New York Stock Exchange (NYSE), which trades only $22.4 billion a day.

The size of the Forex market attracts a variety of participants, including central banks, investment managers, hedge funds, corporations, brokers, and individual traders. Interestingly, 90% of all market participants are currency speculators. So why is the Forex market so attractive to investors?

Imagine that you want to exchange one currency for another. The process involves buying one currency by selling another. The exchange rate between two currencies is important in the Forex market. The rate fluctuates constantly, and it is these fluctuations that create opportunities for speculators to make money or, conversely, lose their investments. These fluctuations depend on the supply and demand of each currency.

It is worth noting that at the same time as you, millions of other traders are participating in the Forex market. So when you “sell” a currency, there is another trader who is buying it. The more traders involved in the process, the higher the liquidity in the market, which means easier access to trades.

What is Forex?

Globally, there are approximately 13.9 million traders trading the currency market at any one time. As we mentioned, this means that the liquidity in the Forex market is extremely high.

High liquidity creates an environment where traders can easily enter and exit trades, as there is always a buyer for every currency being sold and a seller for every currency being bought. This also helps to reduce trading costs, such as spreads. Another benefit of high liquidity is that it reduces market manipulation. If the market had low liquidity, large trades could significantly change the rate, which does not happen in Forex.

Another major advantage of the Forex market is that it is available 24 hours a day, Monday through Friday. Trading in this market is done over-the-counter, meaning there is no physical exchange like in stock markets. Instead, there is a global network of financial institutions and banks that manage the trading, rather than a central exchange like the New York Stock Exchange.

If you start trading as an individual, you will be classified as a “retail trader”. However, most Forex trades are executed by large institutional traders such as banks and corporations. These participants do not always buy or sell currencies, but often speculate on the movement of exchange rates or hedge against possible exchange rate fluctuations.