Chapter 1: Introduction to Forex Trading
Forex, or foreign exchange, is the global market where currencies are bought and sold. It is the largest financial market in the world, with over $6 trillion traded daily. Unlike stocks or commodities, Forex is a decentralized market, meaning there is no single exchange or central location where trading takes place. Instead, transactions occur electronically over the counter (OTC) through banks, brokers, institutions and individual traders.
At its core, Forex trading involves the exchange of one currency for another. Whether for business, travel, investment, or speculation, Forex plays a fundamental role in the global economy.
Why is Forex Important?
The Forex market is essential because currencies power the world economy. Every country operates on a different currency, and Forex allows for the smooth conversion of one currency into another, enabling:
International Trade & Business: Companies need Forex to import and export goods across borders.
Investment & Capital Flow: Governments, banks, and investors exchange currencies for global investment opportunities.
Tourism & Travel: Travelers need to exchange their home currency for local money when visiting another country.
Monetary Policy & Stability: Central banks use Forex markets to control inflation, interest rates, and financial stability.
Beyond its functional role, Forex is also a highly attractive financial market for traders due to its liquidity, accessibility, and profit potential.
When is Forex Traded?
Unlike stock markets, which operate on fixed hours, the Forex market runs 24 hours a day, five days a week. This is because currency trading takes place across multiple time zones around the world.
Forex is open from Sunday at 5:00 PM ET to Friday at 5:00 PM ET, providing continuous opportunities for traders. The market follows global trading activity, moving through major financial hubs such as Sydney, Tokyo, London, and New York.
Where is Forex Traded?
Forex trading happens electronically across global networks, rather than on a centralized exchange. Transactions occur through:
Banks and Financial Institutions: The interbank market facilitates large currency transactions between central and commercial banks.
Forex Brokers & Trading Platforms: Online platforms connect individual traders to the Forex market, providing access to real-time prices, analysis tools, and order execution.
Corporations & Governments: Businesses and central banks participate in Forex markets to manage currency risks and maintain economic stability.
Due to its decentralized nature, Forex offers flexibility, allowing anyone with an internet connection to participate, from institutional investors to retail traders.
Key Takeaways
Forex is the global market for buying and selling currencies, enabling trade, investment, and economic stability.
It is the largest and most liquid financial market, with a daily turnover exceeding $6 trillion.
Trading occurs 24 hours a day, five days a week, across different time zones.
Transactions take place electronically through banks, brokers, and institutions, without a central exchange.