What is the Forex Trading Market?

The foreign exchange ('forex' or 'FX') market is the busiest and largest financial market in the world. With a daily turnover of around $3 trillion and with trading sessions in all four corners of the globe, for forex market offers an exciting place to trade and invest in currencies.

Who can Trade on the Forex Market?

Almost anyone can trade today. Once just a platform for insider professionals, the forex market can now be accessed by adults around the world who buy and sell currency pairs – either directly or via derivative products (such as CFDs or Futures contracts).

As long as you are at least 18 years of age, have a minimum amount of capital to invest (specified by forex broking companies) and an appetite for risk, you can probably open a trading account.

How can I trade Forex?

Most traders set up an online account with a good online forex broking company. View a wide range on our Comparison page. They offer:

• An account handler
• Tight spreads
• A minimum account size
• A minimum trade amount
• Fixed and variable spreads
• Additional features (such as advisory services)

Brokers offer a range of additional services – which might cost extra. These might include dedicated trading advice, support, charting software and more.

Where is Forex Traded?

There is no one central location from which trading activity takes place. 'Retail' (individual) traders use their online platforms, and can even trade on the go using a special mobile set up. Their platform is held with a broking company.

Trading takes place between any two parties 24 hours a day via telephone or internet. The market itself is not regulated but forex brokers should be fully regulated by the Financial Services Authority in the UK and by the relevant financial regulating body in other countries.

Who Else is Trading?

As mentioned, large banks and corporations have traditionally populated the forex market. They deal with special rates and make large transactions on a very frequent basis.

But today, individuals also invest in the forex market – private investors, brokers, international financial managers and more. The market is expanding!

When can I Trade?

The forex market is good for people who want to be trading frequently, because it is open the majority of the time. Each trading day begins in Sydney Australia and continues as each world region wakes up – Tokyo, London, Frankfurt and finally New York.

No matter if you are travelling around – you'll find that there will usually be a session open in one or two locations.

Why should I trade Forex?

Trading currencies is one way to invest your money – buy buying and selling currency pairs, you are aiming to make a profit and an overall return on your original capital.

Unlike a savings account, which earns interest on your cash, trading live on the forex market is a much more direct way to aim for financial growth. Because you are taking matters into your own hands and actively trading, you are open for larger profit – but equally, you are exposed to more risk.

If you have a healthy appetite for risk and an understanding for the concepts of the forex market investment trading, then forex could be a rewarding and exciting place to invest.

However it is absolutely crucial that any person who intends to become an investment trader carries out a certain level of research, background learning, practise and even training. This is because of the volatility factor of the forex market.

What is Volatility?

Volatility is used to describe the frequent changes and constant movement of the forex market. More importantly, this change is said to be unpredictable – you cannot foresee in which direction the market will move next (although you can use technical analysis and outside factors to help you make an educated guess).

The forex market, due to its high trade volumes around the world day and night, is notoriously volatile. So, if you decide to buy euros because you believe the value will rise, you might find that you make a loss because it does exactly the opposite.

Not surprisingly, there is much speculation surrounding the currency market, and people spend a lot of time analysing and noting trends and patterns – this helps traders to make the right 'buy' and 'sell' choices.

What are the Currency Majors?

You'll notice that there is a group of currencies which receive the largest amount of trading volume – these are the currency majors. They include the British pound, US dollar, Euro, Swiss Franc, Yen, and the Australian and Canadian dollars.

The majority of trades involve these currencies and another noteworthy fact is that they are generally currencies of countries where the political climate is stable.

What Affects Currency Values?

Currencies are constantly going up and down in value. Some currencies are 'strong' for long periods – that means investors are buying larger amounts of them and this is usually because the country/region of that currency is particularly stable or has good economic data.

Many things affect the prices of currencies – the base interest rate of each region, economic and political conditions, inflation rates and more.

Governments often participate in the forex market to try and influence the value of their currency – they might buy large amounts of their currency in order to raise the price of it. These types of measures are taken to battle economic factors like inflation and deflation.

Are there Risks?

There are risks to trading on the forex market – and these should be outlined by your broker when you register for a trading account. Here are some of the main risks you will encounter:

• Market is highly volatile
• Unexpected price changes
• Major loss of capital
• Some currencies 'riskier' than others

By putting money in forex trading, you expose that money to the risk of loss. You might be certain that your 'buy' (or long) position is certain to win you returns, but this could change – an event can take place to suddenly make that currency lose value.

Unexpected events pepper the financial market – such as worse-than-expected data from industry sectors in a country, the Bank of England's decision to, say, keep the base interest rate low. Unfortunately, events such as natural disasters can also have a negative effect on a currency.

Can you Manage Risk?

Before you commence trading, make sure you consider the risks involved and take steps to manage your risk exposure. Here are some ways in which you could do this:

• Trader training
• Research
• Ordering Stop Losses
• Taking an Advisory service
• Starting with small positions
• Invest what you can afford to lose
• Practising with 'demo' accounts

There are so many pieces of advice for prospective traders and it can be hard to know where to begin. There are some certain facts however: you ought to know what you're doing before you start!

For instance, you should be familiar with how the market works, which technical tools can help you and so on. Joining a free online training academy can be a great boost – they offer free seminars, research tools and resources.

You can pay extra and go with an 'advisory' service – this is a broker who offers extra service, guidance and tips. They will be your dedicated hand, making sure you know what today's currency movements are and where good investments lie. However, at no time can such a service guarantee that you make returns as a result of the extras.

Before investing in any area, make sure you consider very carefully how much you want to invest – and how much you can afford to. The age-old investment rules goes: "never invest money which you cannot afford to lose."

If you are unsure about your suitability for investment trading, seek independent financial advice to discuss your personal financial situation.

Note: because the risks in forex trading are significant, we have outlined them in a separate guide.