Forex trading (also known as exchange trading and FX trading) is simply the trading of global currencies back and forth across the foreign exchange market.
On the Forex market, much like trading stock, currencies may be bought and sold, but in pairs. Currencies are traded in pairs because you need to have one currency that you are exchanging for another, just like you would do if you were in a foreign country and needed to trade for the local currency.
While it may seem overwhelming to think about all the different currency trading combinations, in reality, only a few currencies are traded heavily, including: the U.S. Dollar, the Euro, the British Pound, the Yen, the Swiss Franc, the Canadian Dollar, the New Zealand Dollar, and the Australian Dollar. In fact, the vast majority of all trades involve some combination of these eight currencies.
The Largest Trading Market in the World
Unlike all of the major stock exchanges in various countries, Forex exchange does not operate from a physical address, but rather the entire market is run electronically. As one stock exchange closes for trading each afternoon, another opens, and there is always overlap.
The foreign exchange market is the largest trading market in the world, with approximately $4 trillion in overall trading volume per day. Many investors enjoy Forex trading because the markets are open 24 hours a day, 5 days per week. Because trading is continuous during this time, most traders have a preferred time during the day in which to trade currencies; usually when several large foreign exchange markets overlap their trading sessions. By trading at the right time of day, when volume is highest, traders stand to gain the most profit.
What is a Pip?
A pip is the “Point in Percentage”, or the unit of measure representing the price change for a currency in a pair of currencies. Generally, a pip represents a tiny percentage (in most pairs it’s 1/100th of 1%) of a currency, because most currencies—except the Japanese Yen–are measured to the fourth decimal place (i.e., 1.2089). Thus, 1 pip typically equals 0.0001 point.
Trading on the Forex Market
Like other exchange markets, traders can invest in a variety of ways that most people are familiar with, including: the Forex spot market, options, future, and exchange-traded funds (ETFs). Thus, if you only prefer to trade currencies like Stocks, the spot market is for you; however, there are several other opportunities to trade too, making this market ideal for most knowledgeable investors.
Besides the kinds of investment options available, in a nutshell, here are a few reasons that currency trading on the Forex market is so popular:
- It runs on a 24-hour market
- The low transaction fees
- Getting started and entering the market is relatively easy
- No commission fees
- Trades don’t require a middleman
- Trades may be leveraged, allowing for larger gains
Global forex companies:
Saxo Bank – Best Overall
Saxo Bank finished 1st in our 2018 Annual Review of 43 brokers. Its competitive pricing, access to a wide range of markets, multiple regulatory licenses, and innovative trading platforms provide forex traders around the glove an all-around excellent offering. (69% of retail CFD accounts lose money.) Read more…
IG – Best for CFDs, Most Trusted
Rated as our Most Trusted Broker of 2018, IG Received 5 Stars and second overall in our 2018 Review. IG also finished #1 for Offering of Investments (5 Stars) and Education (4.5 Stars). In total, IG placed Best in Class for seven of the eight review categories. (79% of retail CFD accounts lose money.) Read more…
eToro – Best for Social, Copy Trading
Traders looking to harness the power of crowdsourcing to find trading ideas have ample tools on eToro’s social trading network to copy the trades of other users in real time across over 1000 instruments, including CFDs on popular cryptocurrencies.
Swissquote – Best for Crypto, Banking
Swissquote is a trusted, global multi-asset broker and bank offering traders access to over two million products, from forex to CFDs, exchange-traded securities, wealth advisory services, underlying cryptocurrencies, and more.
CMC Markets – Best Currency Offering
Through its offices regulated in major financial centers, CMC Markets offers traders a wide range of offerings across global markets with its Next Generation trading platform, which is packed with innovative trading tools and charting. (74% – 89% of retail CFD accounts lose money.) Read more…
FxPro – Best for MetaTrader
Ranked #1 for MetaTrader brokers, FxPro caters to the needs of a diverse range of traders due to its various orders and account types, as well as its execution and pricing models, which offer instant execution, and floating or fixed spreads. (79% of retail CFD accounts lose money.) Read more…
Forex.com – 4.5 Stars
FOREX.com earned 4.5 stars Overall and finished Best in Class in seven main categories. The firm’s parent company, GAIN Capital, remains one of the largest forex brokers in the United States and caters to global forex traders of all experience levels. (80% of retail CFD accounts lose money.) Read more…
Dukascopy – Best for Trading Tools, Mobile Trading
Dukascopy Bank boasts the most robust offering of desktop and mobile platforms, helping it finish #1 for Platform & Tools and #1 for Mobile Trading in 2018. The innovative JForex platform suite and competitive commission structure give traders access to extensive resources for a growing range of forex pairs and CFDs. (74% – 89% of retail CFD accounts lose money.) Read more…
Interactive Brokers – Best for Professionals
Ranked #1 for Professional traders, Interactive Brokers is known for its diverse offering of investments. Founded nearly 40 years ago, clients can trade on more than 120 market centers in 26 different countries, and deal in forex, CFDs, stocks, options, ETFs, futures, bonds, and more. (63.5% of retail CFD accounts lose money.) Read more…
TD Ameritrade – Best for US Residents
Available only to US residents for forex trading, TD Ameritrade ranked #1 for Customer Service and Platform Technology in our 2018 Review. The broker’s thinkorswim platform provides one of the most powerful charting applications, offering nearly 400 technical indicators. Read more…