What is Forex Trading?
Learn the basics of the foreign exchange market and how currency pairs work
Forex (foreign exchange) is the largest financial market in the world, with over $6 trillion traded daily. Unlike stock markets, forex operates 24 hours a day, five days a week, making it accessible to traders worldwide.
Understanding Currency Pairs
In forex trading, currencies are always traded in pairs. The first currency is called the base currency, and the second is the quote currency. For example, in EUR/USD, EUR is the base and USD is the quote.
- Major pairs: EUR/USD, GBP/USD, USD/JPY, USD/CHF
- Minor pairs: EUR/GBP, EUR/AUD, GBP/JPY
- Exotic pairs: USD/TRY, EUR/PLN, GBP/ZAR
How Forex Trading Works
When you trade forex, you are simultaneously buying one currency and selling another. If you believe EUR will strengthen against USD, you would buy EUR/USD. If EUR rises, you profit; if it falls, you lose.
Market Participants
The forex market includes various participants such as central banks, commercial banks, hedge funds, corporations, and retail traders like yourself. Each plays a different role in determining currency prices.
Trading Sessions
The forex market operates across different time zones, creating distinct trading sessions:
- Sydney Session: 10:00 PM - 7:00 AM GMT
- Tokyo Session: 12:00 AM - 9:00 AM GMT
- London Session: 8:00 AM - 5:00 PM GMT
- New York Session: 1:00 PM - 10:00 PM GMT
Key Takeaways
- Forex is the largest financial market with $6+ trillion daily volume
- Currencies are traded in pairs (base/quote)
- The market operates 24/5 across different global sessions
- Various participants influence currency prices