Forex Market: A Comprehensive Guide to Understanding the Global Currency Exchange

The (Forex) foreign exchange market represents a meeting point for banks, institutions, and investors around the world to continuously exchange currencies. Every time you make a cash transfer before traveling or pay a bill in a different currency, you are directly participating in this massive market that never stops.

Forex is renowned for being the largest financial market in the world in terms of trading volume and liquidity. The daily transaction value reached $9.6 trillion according to the latest statistics recorded in April 2025, a figure that far exceeds the total traded in global stock markets combined. This enormous size is due to the global nature of currencies and the ongoing reliance of the international economy on exchange operations.

What distinguishes the forex market?

Forex is an abbreviation for “Foreign Exchange,” the market where currencies are traded among individuals, banks, companies, and countries around the clock. When you deal in this market, you buy one currency and sell another simultaneously, such as the EUR/USD pair where the first currency is the “base currency” and the second is the “quote currency.”

Basic facts about the forex market:

• A market without a physical center: Operates through a global electronic network without a central exchange bringing traders together in one place
• Operates 24/5: Five days a week and 24 hours a day due to the succession of trading sessions between financial centers (Sydney, Tokyo, London, New York)
• Trading via pairs: You cannot buy a currency alone, always against another currency
• Daily opportunities: Thanks to massive liquidity and continuous fluctuations, traders find multiple opportunities daily
• Various economic influences: Interest rates, economic growth, inflation, and political stability all affect currency movements

Types of currency pairs

Forex pairs are divided into three main categories:

Major pairs (Majors): Include the most traded currencies globally such as EUR/USD, USD/JPY, GBP/USD, USD/CHF, characterized by high liquidity and narrow spreads.

Minor pairs (Minors): Do not include the US dollar, such as EUR/GBP and GBP/JPY, with less activity but wider spreads.

Exotic pairs (Exotics): Combine a strong currency with a currency from an emerging economy, such as USD/MXN, characterized by higher volatility and greater risks.

Basic terminology

Spread: The difference between the buy and sell price, which is how trading platforms generate profit.

Lot: The unit of measurement for trade size, divided into standard, mini, and micro lots to control trading volume.

Pip: The smallest price change in a currency pair, usually the fourth decimal place.

Leverage: A tool that allows opening larger positions with a small capital, but also doubles losses.

Margin: The amount required as collateral to open a leveraged position.

How does the forex market work?

Trading is based on a simple principle: expect the base currency to rise against the second, so you buy the pair; or expect it to fall, so you sell. Since currency movements depend on the relationship between two currencies, an increase in one necessarily means a decrease in the other.

Historically, the market was dominated by major banks and institutions, but today it is more open, allowing individual investors to enter and benefit from rapid price changes.

Factors influencing forex

Monetary policies: Central bank decisions on interest rates and quantitative easing directly impact currency value. In 2022, the US Federal Reserve repeatedly raised interest rates, strengthening the dollar against the euro and yen.

Inflation and economic growth: High inflation reduces purchasing power, while strong economic growth attracts investors and strengthens the currency.

Government intervention: Sometimes, central banks intervene directly in the market to support or devalue their currency for economic objectives.

Political and geopolitical crises: Unstable events push investors toward safe-haven currencies like the dollar and yen. During the COVID-19 pandemic in 2020, the market experienced sharp fluctuations, and investors turned to safe assets.

Trading styles: long-term vs. short-term

Long-term trading: Involves holding positions for weeks, months, or even years, based on fundamental analysis. Traders here focus on major economic indicators and central bank decisions.

Short-term trading: Aims for quick profits through trades lasting minutes or a few days, using technical analysis and various indicators.

Popular trading tools

CFDs (Contracts for Difference): Allow predicting price movements without owning the actual currency, offering high flexibility.

Futures: Set the exchange rate for a currency at a future date, useful for long-term planning.

Spot trading: Direct currency exchange at the current price, most common among traders.

Advantages and challenges of forex

Advantages:

• 24-hour trading provides time flexibility
• Relatively low capital requirements
• Very high liquidity and fast order execution
• Opportunities for profit from short-term and long-term movements

Challenges:

• High risks that can lead to complete capital loss
• Requires advanced knowledge of technical and fundamental analysis
• Constant price volatility
• 24/7 management of trades requires advanced tools

Most popular forex strategies

Scalping (Scalping): Opening and closing trades within minutes to achieve small profits from points.

Day Trading (Day Trading): Opening and closing trades within the same day to avoid overnight risks.

Swing Trading (Swing Trading): Holding positions for several days or weeks to capitalize on medium-term trends.

Trend Following (Trend Following): Following the overall price movement using moving averages and other indicators.

Important technical indicators

Moving Averages: Help identify the overall trend and reduce the impact of daily fluctuations.

Relative Strength Index (RSI): Determines if the price is overbought or oversold.

MACD Indicator: Shows the overall trend and potential market reversals.

Bollinger Bands: Reveal volatility levels and potential breakout points.

Support and Resistance Levels: Specific prices where the market tends to pause or reverse.

Tips for beginners

• Study currency pairs and influencing factors thoroughly before starting
• Set a clear plan and stick to it in every trade
• Start with a demo account to practice strategies without real losses
• Use stop-loss orders to protect your capital
• Control your emotions and avoid letting losses or greed dictate decisions
• Keep learning and stay updated on economic and political developments

Summary

The forex market offers a real opportunity for traders and investors to profit from exchange rate fluctuations. Its distinguishing features are massive liquidity and continuous availability throughout the day. Everyone can participate—from beginners starting with small capital to professionals employing advanced strategies.

Success in forex depends on continuous learning, developing analytical skills, and emotional control. Whether aiming for short-term profits or long-term investment, understanding the market, proper planning, and using the right tools make the experience safer and more profitable.

Forex is not just a currency exchange market but an ongoing educational experience to understand the global economy and wisely leverage financial opportunities with discipline.