The foreign exchange market (forex or FX) is the largest financial market in the world, with over $6 trillion traded daily. Let's explore the fundamentals of forex trading.
What Is Forex Trading?
Forex trading is the exchange of one currency for another. Unlike stock trading where you buy shares of a company, in forex you're always trading one currency against another.
When you trade forex, you're speculating on whether one currency will strengthen or weaken relative to another.
Understanding Currency Pairs
In forex, currencies are quoted in pairs. For example:
EUR/USD = 1.0850
This means 1 Euro equals 1.0850 US Dollars.
Base and Quote Currency
In EUR/USD:
- EUR is the base currency (first)
- USD is the quote currency (second)
The exchange rate tells you how much of the quote currency you need to buy one unit of the base currency.
Buying vs. Selling
- Buying EUR/USD (going long): You expect EUR to strengthen against USD
- Selling EUR/USD (going short): You expect EUR to weaken against USD
Types of Currency Pairs
Major Pairs
Most traded pairs, all include USD:
- EUR/USD (Euro/Dollar) – "Fiber"
- GBP/USD (Pound/Dollar) – "Cable"
- USD/JPY (Dollar/Yen) – "Gopher"
- USD/CHF (Dollar/Swiss Franc) – "Swissie"
- AUD/USD (Australian Dollar/Dollar) – "Aussie"
- USD/CAD (Dollar/Canadian Dollar) – "Loonie"
- NZD/USD (New Zealand Dollar/Dollar) – "Kiwi"
Cross Pairs
Major currencies traded against each other (without USD):
- EUR/GBP
- EUR/JPY
- GBP/JPY
- EUR/CHF
Exotic Pairs
Major currency paired with an emerging market currency:
- USD/TRY (Turkish Lira)
- USD/MXN (Mexican Peso)
- EUR/PLN (Polish Zloty)
Key Forex Concepts
Pips
The smallest price movement in forex, typically the fourth decimal place.
EUR/USD moving from 1.0850 to 1.0851 = 1 pip
Spread
The difference between the buy (ask) and sell (bid) price. This is the cost of trading.
Leverage
Forex brokers offer high leverage (often 50:1, 100:1, or more). This amplifies both gains and losses.
⚠️ Warning: High leverage is dangerous for beginners. Many retail forex traders lose money.
Lot Sizes
- Standard lot: 100,000 units
- Mini lot: 10,000 units
- Micro lot: 1,000 units
What Moves Currency Prices?
Interest Rates
Higher interest rates attract foreign investment, strengthening the currency.
Economic Data
GDP growth, employment numbers, inflation data all impact currencies.
Central Bank Policy
Statements and actions from the Federal Reserve, ECB, BOJ, etc.
Geopolitical Events
Elections, conflicts, trade agreements affect currency values.
Market Sentiment
Risk-on vs. risk-off flows between "safe haven" and "risk" currencies.
Major Trading Sessions
Forex operates 24 hours but has distinct sessions:
- Asian session: 7 PM - 4 AM ET
- London session: 3 AM - 12 PM ET
- New York session: 8 AM - 5 PM ET
The most volatile periods occur when sessions overlap (London-New York overlap is particularly active).
Getting Started with Forex
Learn First
Understand the basics thoroughly before trading real money.
Practice on Demo
Most brokers offer demo accounts. Use them extensively.
Start Small
When going live, use micro lots and minimal leverage.
Focus on Major Pairs
Start with EUR/USD and GBP/USD—most liquid, tightest spreads.
Practice Forex Trading
At ChartMini, you can practice forex trading with historical data on major currency pairs like EUR/USD, USD/JPY, and GBP/USD. Develop your skills in a risk-free environment before trading real money.
Conclusion
Forex offers opportunities around the clock, but the combination of leverage and 24/7 markets makes it challenging for beginners. Learn the fundamentals, practice extensively, and approach with caution.
The forex market has made many traders successful—and ruined many more who didn't respect its risks.