Trading Basics
Build your foundation with a beginner's guide to forex trading: how the market works, the main types of market, and how to get started.
What is forex trading?
Forex (FX) is short for foreign exchange, the process of changing one currency into another. The daily global volume for forex trading reached $7.5 trillion in 2022, according to the Bank for International Settlements.
The forex market has no central marketplace. Currency trading is conducted electronically over the counter (OTC), through computer networks among traders worldwide. The market is open 24 hours a day, five and a half days a week, beginning in Tokyo and Hong Kong when the US trading day ends.
Forex was once dominated by large banks and institutions. It is now open to traders and investors of all sizes.
Types of market
The spot market is the largest. It is where currencies are bought and sold at the current price, which is set by supply and demand, interest rates, economic performance and sentiment. Spot deals settle over two days.
The forwards and futures markets let companies and financial firms hedge currency risk to a future date. Forward contracts are private agreements traded OTC. Futures are standardised contracts traded on exchanges, such as the Chicago Mercantile Exchange.
Options give the holder the right, but not the obligation, to enter into a forex trade at a future date.
How to start trading forex
- Open a demo account to practise before you trade with real funds
- Develop a trading strategy to set guidelines and a roadmap
- Check your positions and account balance regularly
- Keep your emotions in balance and close positions when necessary