Forex, or foreign exchange, is the largest financial market in the world. It is where trillions of pounds worth of global currencies are traded daily.
Forex trading is the process of buying and selling currencies. When you trade forex, you are essentially betting on whether the value of one currency will go up or down against another currency. If you are correct, you can make a profit. However, if you are wrong, you can lose money.
Forex trading can be a very profitable activity, but it is also very risky. It is important to understand the risks before you start trading forex.
How does Forex work?
Forex trading is done in currency pairs. A currency pair is simply the price of one currency in terms of another currency. For example, the EUR/USD currency pair is the price of the euro in terms of the U.S. dollar.
When you trade Forex, you are buying one currency and selling another currency. For example, if you think that the euro is going to go up against the U.S. dollar, you would buy EUR/USD. This means that you are buying euros and selling U.S. dollars.
If your prediction is correct and the euro does go up against the U.S. dollar, you will earn a profit. However, if your prediction is wrong and the euro goes down against the U.S. dollar, you will lose money.
Who trades Forex?
Forex is traded by a wide variety of entities, including:
- Banks: They are the largest participants in the market. They use the market to hedge against currency risk, to facilitate international trade, and to speculate on currency movements. Central banks are responsible for controlling the value of their currency.
- Hedge funds: They use the market to hedge against risk, to speculate on currency movements, and to generate returns for their investors. They typically take on more risk than banks and are focussed on maximising profits.
- Corporations: Some operate as hedge funds, whereas other corporations others trade to reduce risk and others to facilitate international trade.
- Individual traders: Despite there being over 10 million individual traders, we make up the smallest participants in the forex market.
Our focus is providing resources for individual traders and we will collaborate with other trades when presenting information and sharing strategies.
Is it safe?
Forex trading is extremely risky activity. There is always the possibility of losing money when you trade forex. However, there are ways to mitigate the risk of loss.
As an individual trader you will always be trading though a broker. Without one, it is simply not possible to trade currencies. It is important to ensure that the broker you have chosen is reputable. It is worth noting that the broker controls the prices shown to users.
When you make a trade on an investment platform, you may think that you are trading directly with the market. This is not the case. You are actually trading with a broker. The investment platform is your broker and it serves as an intermediary between you and the market. They provide you with access to the market, hold your funds execute your trades, and clear and settle your trades.
Forex is a complex and risky market, but it can also be a very profitable market. If you are interested in trading forex, it is important to do your research and to understand the risks involved.
Additional resources
There is already a vast amount of information available for new traders to learn more about Forex. We have provided some additional resources that we know our readers will find helpful.