What is Forex, and how to learn more about trading

The foreign exchange (Forex) market is the largest financial market in the world. It has a total daily average volume of 7.5 trillion USD. Trying to get an idea about what Forex is and how you can trade this volatile market? In this article, we'll get to the basics of trading and learn some key terms that will help you get started.

What is Forex?

Forex, or Foreign Exchange (FX), is popularly known as an essential instrument for currency exchange worldwide. The vast marketplace is the centre of many different currencies that are traded daily to support global trade, tourism, and personal economic plans for profit. The market operates 24 hours a day, five days a week, and covers most financial centres, including New York, London, Tokyo, and Zurich.

The Forex participants are banks, financial corporations, hedge funds, and individual traders. The market is universal and can be used for both speculation and hedging currency risks.

A broker is a company that gives you access to the Forex market. You can start trading with them by registering on their website and opening a trading account. Normally, everything is done online. You can manage your accounts and open and close new orders from your mobile phone or computer. It's up to you.

How does Forex differ from other markets?

Forex provides advanced opportunities for traders of different levels. These features make the market unique:

• High liquidity. The market's daily trading volume ranges from 5 to 7 trillion dollars, making Forex the largest financial market in the world.
• 24/5 availability. Forex trading is available around the clock, excluding weekends. Traders can enter the market anytime, without the restrictions of ordinary stock exchanges.
• Types of traded assets. Here, traders sell and buy currencies. Unlike the stock market, Forex exchange takes place based on currency rates related to economics and politics.
• Market structure. Forex isn't linked to any centralised exchange. All transactions occur directly through networks of banks and brokers.
• High volatility. The market is volatile since currency rates are unstable and depend on external factors (politics, economic situation). Along with certain risks, high volatility opens up opportunities for profitable trading.

How to read Forex pairs?

When it comes to Forex trading, each trade involves selling one currency and buying another at the same time, for example, GBPUSD. The first currency in the pair is the base currency, and the second is the quote currency.

Forex pairs explained

Forex pairs are classified as majors, minors, and exotic pairs.

Major currency pairs

Major pairs include USD as the base or quote currency. These pairs include USDJPY, USDCHF, USDCAD, EURUSD, NZDUSD, AUDUSD, and GBPUSD.

Minor currency pairs or cross-currency pairs

These currencies are derived from major pairs, i.e., they are cross pairs of major currencies. They include, among others, GBPCAD, EURJPY, and GBPCHF.

Cross pairs are derived from the major pairs in the following way:

GBPCAD example

GBPCAD is derived from major pairs GBPUSD and USDCAD

(GBP/USD)×(USD/CAD)

(GBP/USD)×(USD/CAD)=GBPCAD

EURCHF example

(EUR/USD)×(USD/CHF)

(EUR/USD)×(USD/CHF)=EURCHF

Exotic currency pairs

Exotic pairs consist of a major pair, either base or quote, traded against the currency of a developing country. Examples include USDMXN, USDHKD, and GBPZAR.

Bid and ask prices in Forex

In Forex trading, 'bid' and 'ask' prices are defined as follows: 'bid' is the price you'll receive when you sell a currency, and 'ask' is the price you pay when you buy.

Spread in Forex trading

Spread is a key term in Forex trading. It represents the transaction cost. The spread is simply the difference between the buying and selling prices of currencies. This difference represents the commission your broker receives for handling your trade, thus determining the price of your markets.

The difference is the spread. In the example above, the GBPUSD spread is 2 pips.

Why join a Forex broker

Forex is exciting! It's the world's largest financial market, so you can imagine its potential for investors. Since it became more accessible to users worldwide, it has become an alternative to earning a living for many people.

If you are thinking about joining, Octa is here for you. Octa is an award-winning international broker. By choosing us as your Forex trading platform, you'll benefit from the following trading conditions, helping to make your experience a smooth and easy one:

• No hidden commissions
• Fast deposits and withdrawals
• Deposit bonuses
• Loyalty program
• Referral program
• 24/7 support from our international team

It's easy to get started: simply open an account on our website to register and create your profile.

In your profile, you can:

• Verify your account to help us make it as secure as possible
• Deposit and withdraw your money
• Open new trading accounts
• Trade
• Restore passwords
• Manage your bonuses

Set up your trading account and place your first trades.

Inexperienced traders can join the Forex market just by following these four steps of successful trading.

Expand your knowledge about Forex

To profit from trading, you need to learn about the market, its features, and possible changes and risks. Use the following sources:

• Octa. As a broker, your trading success is our highest priority. We offer numerous free educational resources, such as free trading webinars in different languages on our YouTube channel, educational articles like this one, and, most importantly, Space—an in-built feed that you can access for free when opening an OctaTrader account with us. Space offers daily market analysis, ready-made trading ideas and strategy explanations.
• Educating platforms. Specialised sites such as Coursera, Udemy, and Investopedia offer trading courses, many of which are free of charge.
• Webinars. Many financial companies conduct free or paid seminars where experts share their trading experience.
• Literature. Draw knowledge from books on Forex trading. For example, 'Currency Trading for Dummies' by Kathleen Brooks and Brian Dolan or 'Day Trading and Swing Trading the Currency Market' by Kathy Lien.
• News resources. Subscribe to world news agencies (Bloomberg, Reuters, etc.) and stay updated with events affecting financial markets.

You can also learn more about Forex in our article.

Final thoughts

• Forex is a global market where currencies are traded. Participants can profit from price fluctuations by buying and selling currency pairs.
• Brokers play a crucial role in Forex trading by providing access to the market. Traders can register online and open accounts to begin trading.
• The Forex market is differentiated by its high liquidity, volatility, and 24/5 operational hours.
• To learn how to trade in Forex, apply to online courses, webinars, and literature to develop effective trading strategies and understand market dynamics.
• You can also open a demo account to practice and understand leverage and margin requirements.