Foreign exchange (forex or FX) trading involves buying one currency and selling another while attempting to profit from the trade. According to the latest reliable data, global daily trading in 2022 was $7.5 trillion, making forex the largest financial market in the world, dwarfing even the global stock market.
Bank for International Settlements. “OTC Foreign Exchange Turnover in April 2022.” Page 1. Trading currencies online has become far more accessible in the last decade, attracting droves of newer traders wanting a piece of the action.
In forex markets, currencies trade against each other as exchange rate pairs. For example, the EUR/USD would be a currency pair for trading the euro against the U.S. dollar. This is straightforward, but the market lingo comes fast at beginners and can quickly become overwhelming. Assets traded in FX include currencies, contracts for difference (CFDs), indexes, commodities, spreads, and cryptocurrencies. There are also forex spot and derivatives markets for forwards, futures, options, and currency swaps, all to speculate or hedge on forex prices. If all this weren’t enough, jargon like “pips,” “lots,” and “leverage” mean that, without a good introduction, newer traders can quickly feel they are in over their heads.
That’s why we’ve put together this detailed guide to help you start trading foreign currencies the right way. We’ll break down the essential concepts and guide you through the most critical steps, from choosing a broker and placing your first trade to developing a solid strategy and, most importantly, managing your risk.