What is Forex Trading? | Complete Guide to Foreign Exchanges (2024)

Forex, also known as foreign exchange, or FX,is the world's largest and most liquid financial market for exchanging national currencies. It is a non-stop global decentralized or over-the-counter (OTC) market for the trading of currencies through banks, commercial companies, central banks, investment management firms, hedge funds and investors.

At HFM we offer Derivatives on Forex on a wide variety of currency pairs with exceptional trading conditions such as tight spreads and fast execution. Open a trading account and use our powerful trading platforms and professional tools to trade today’s markets with the advantage of tomorrow’s cutting-edge technology!

WHAT IS FOREX TRADING

Forex trading is the buying and selling of currencies with the aim of making a profit. As the largest and most-traded financial market in the world, foreign exchange offers ample opportunities for those who want to experience the highest volumes and liquidity.

Currencies are traded in the foreign exchange market, a global marketplace that’s open 24 hours a day Monday through Friday, with traders buying one currency and selling another at an agreed price, which causes the exchange rate to constantly fluctuate. An everyday example of forex trading is exchanging currency when travelling abroad.

In 2022, global FX trading hit a record $7.5 trillion a day. The vast majority of Forex trading does not occur on any one centralized or organized exchange but through the interbank currency market and OTC market where individuals trade through online platforms and brokers. The interbank currency market is a twenty four hour market that follows the sun around the world, opening in Australia and closing in the US. Whilst the market exists for organizations with exchange risk, speculators also participate in the Forex markets in an effort to profit from their expectations regarding shifts in exchange rates.

Forex trading is the process of exchanging one currency for another in a simple trade that is based on the current rates of the two currencies involved.

Currencies are traded in pairs - the first currency listed in a forex pair is called the 'base' currency while the second currency is called the 'quote' currency. When traders trade forex they buy one currency and sell another. Profits are made if the currency the trader buys moves up against the currency the trader sold.

The EURUSD (Euro/US Dollar) is the most traded currency pair in the world.

• EconomicData
• MarketSentiment
• Central BanksDecisions
• Value of Country'sGovernment Bonds
• PoliticalEvents
• Prices ofCommodities

Economic releases like a country’s Inflation, or GDP, which shows the strength of the local economy, affect traders’ perception of the stability of the country and its currency. A positive GDP tends to boost the currency, while a negative report will have the opposite effect.

Market sentiment, or the mood of the markets, reflects the general feeling among traders. Traders react to market optimism and pessimism, thus affecting demand and supply and then the price.

Decisions by central banks, such as on interest rates, monetary policy, quantitative easing etc, can affect currencies, as higher rates mean higher returns for investors and henceincrease demand for the currency.

Bond yields serve as an excellent indicator of the strength of a nation’sstock market, which increases the demand for the nation’s currency.

Large scale and international events and political news and events such as elections can introduce volatility into the markets and therefore affect currency prices.

Prices of commodities which are linked to certain currencies, such as Oil with the US Dollar and Japanese Yen, as the US and Japan are major oil importers.

Learn how to trade the foreign exchange market with HFM. There are many reasons the Forex market is so popular; there is a huge number of different currency pairs to choose from, from majors to emerging to exotics, it is a huge global market that works 24 hours a day, five days a week, and the move online has made the markets accessible to more people than ever before.

The HFM Forex Education Centre is filled with educational resources to help you learn the basic concepts and strategies you will need to get started trading so you can make a dynamic entry into the market.

Before you trade you need to follow a few steps. Open a live trading account and start forex trading in less than 3 minutes:

When to Trade Forex?

In the early days, the Forex market was used by institutional investors that transacted large amounts for commercial and investment purposes. Although legal entities continue to be the biggest players, in today's information superhighway the Forex market has expanded and become equally accessible to private investors, also known as retail forex traders.

The growth in the Forex market over the last decade has seen an increase in non-institutional traders accessing the Forex market and the benefits it offers via online brokers such as HFM, which offers access to hundreds of markets, competitive trading conditions, regulation and transparency to create a safe and trusted trading environment. The brokers act as a bridge between the trader and their liquidity partner or partners (sometimes larger global banks) that clients would otherwise not have sufficient capital to do business with.

Although legal entities continue to be the biggest players in the Forex market, these days private investors also play a major role. These are some of the differences between the two:

TRADE FOREX