Forex Trading: Your Comprehensive Guide from Basics to Advanced Strategies

Quick Introduction: What You Need to Know About Forex

Every time you travel and convert your currency into a foreign currency, or receive a payment in a currency different from your local currency, you are directly participating in one of the largest financial markets on the planet. The forex market is not a single physical location, but a global network connecting banks, institutions, investors, and individuals to exchange currencies nonstop.

Professional traders use this market for purposes entirely different from ordinary tourists. While a traveler needs to exchange currency to return from their trip, traders benefit from the continuous fluctuations in exchange rates to make profits. This is where the fundamental difference lies.

Market Size That Might Surprise You

The daily trading volume in the forex market reaches 9.6 trillion dollars according to the latest statistics recorded in April 2025. This number is not just a random figure – it means that the trading volume in forex exceeds many times the total traded in all global stock markets combined.

This massive size is not accidental. The global economy fundamentally relies on continuous currency exchange between countries and companies. Every international transaction, foreign investment, and contract between companies from different countries requires currency conversion. This creates an endless demand for currency exchange services.

Forex: More Than Just Currency Conversion

What exactly is forex?

The word “Forex” is an abbreviation for Foreign Exchange. But this simple definition does not reflect the true complexity of the market.

At its core, forex is the process of buying one currency and selling another simultaneously. When you trade, you are not dealing with one currency in isolation. Instead, you always deal with currency pairs like EUR/USD or USD/JPY.

In this pair, the first currency is called the base currency, and the second is called the quote currency or the counter currency. The displayed price tells you how many units of the second currency you need to buy one unit of the first currency. For example, if you see EUR/USD = 1.1050, it means you need 1.1050 dollars to buy 1 euro.

How the Forex Market Works: Infrastructure

Unlike stock markets that are centered in specific exchanges (such as the New York Stock Exchange or Tokyo Stock Exchange), the forex market does not have a single centralized exchange. Instead, it operates through a globally distributed electronic network connecting major banks and financial institutions in a system known as over-the-counter trading (OTC – Over The Counter).

This decentralized system has many advantages:

• Massive liquidity: Because the number of participants is very large and globally dispersed, huge transactions can be executed without significantly impacting prices.
• Continuous availability: There are no fixed opening or closing hours. The market operates 24 hours a day, 5 days a week.
• Narrow spreads: Intense competition among brokers keeps the spreads (spread) relatively low.

Trading Mechanics: Buy and Sell

When you trade in forex, your decision revolves around your expectation of the movement of the base currency against the quote currency:

Long Position (Long): You expect the base currency to rise against the second. For example, buying EUR/USD means you anticipate the euro strengthening against the dollar.

Short Position (Short): You expect the base currency to weaken. Selling GBP/USD indicates you expect the British pound to fall against the dollar.

Since currencies always move in relative relation, the strength of one currency necessarily implies the weakness of the other. This is why understanding this relationship between the two currencies is fundamental to successful trading.

Types of Forex Pairs: Choose What Suits You

Not all currency pairs are equal. There are significant differences in trading volume, liquidity, and risk:

Major Pairs (Majors): These are the kings of the forex world. They include the largest global economies and represent the majority of trading volume. Examples:

• EUR/USD (Euro vs. Dollar)
• USD/JPY (Dollar vs. Yen)
• GBP/USD (Pound vs. Dollar)
• USD/CHF (Dollar vs. Swiss Franc)

These pairs feature very high liquidity and very narrow spreads, making them ideal for beginners.

Minor or Cross Pairs (Minors): Do not include the US dollar. For example:

• EUR/GBP (Euro vs. Pound)
• EUR/CHF (Euro vs. Franc)
• GBP/JPY (Pound vs. Yen)

These pairs have lower liquidity and slightly wider spreads.

Exotic Pairs (Exotics): Connect a strong currency from a developed economy with a currency from emerging markets. For example:

• USD/MXN (Dollar vs. Mexican Peso)
• USD/THB (Dollar vs. Thai Baht)

These pairs are characterized by higher volatility and wider spreads, suitable only for experienced traders.

Essential Terms You Must Master

Spread (Spread): The difference between the bid and ask price. This is the amount the broker earns from each trade. The smaller, the better for you. For example, if EUR/USD is at 1.1050 for sell and 1.1052 for buy, the spread = 2 pips.

Pip (Pip): The smallest unit of price change. Usually represented by the fourth decimal place (0.0001 for major pairs). If EUR/USD moves from 1.1000 to 1.1010, that’s a movement of 10 pips.

Lot (Lot): The size of the trade. One standard lot (Standard Lot) = 100,000 units of the base currency. But you can trade smaller sizes like mini lots (0.1) or micro lots (0.01) depending on your capital.

Leverage (Leverage): A powerful tool that allows you to control a much larger amount than your capital. For example, with 1:100 leverage, a $100 deposit allows you to trade $10,000. But remember: leverage amplifies both profits and losses.

Margin (Margin): The amount you need to deposit as collateral to open a position with leverage. You don’t have to have the full amount, only this small part.

Trading Hours Table: When Is the Market Active?

The forex market never sleeps. Trading begins in Australia (Sydney) and moves westward across Asia (Tokyo and London), ending in North America (New York). This sequence ensures liquidity at any time.

But not all times are equal. The best times to trade are usually when two major sessions overlap:

• London and New York overlap: the most active and liquid period
• London open: a great time for new trades
• Mid-Asia session: usually less movement and wider spreads

Factors Moving Currency Prices

Forex prices do not change randomly. Specific economic and political factors influence currency values:

Monetary Policies: Central bank decisions on interest rates have immediate and strong effects. Raising rates attracts foreign investors and strengthens the currency. Lowering rates does the opposite. In 2022, the US Federal Reserve raised interest rates sharply, leading to a strong dollar against the euro, yen, and others.

Economic Growth and Inflation: A strong, steadily growing economy attracts investments and strengthens its currency. High inflation weakens it. In 2015, when China announced a slowdown and export concerns, the People’s Bank of China sharply devalued the yuan, impacting global markets.

Direct Government Interventions: Sometimes, central banks intervene directly in the market. In 1985, five major countries (Plaza Accord) agreed to devalue the dollar to improve economic competitiveness, and the dollar fell sharply.

Political and Geopolitical Events: Political instability drives investors to seek safe havens. Currencies like the dollar and yen are considered “safe havens.” During the COVID-19 pandemic in 2020, investors flocked to the dollar and yen while emerging market currencies declined.

Trading Styles: Long-Term vs. Short-Term

Forex trading is not one-size-fits-all. You can choose the style that suits your personality and goals:

Position Trading (Long-Term Trading): Holding trades for weeks, months, or even years. Focus on overall trends and fundamental economic factors. This style is less mentally exhausting and doesn’t require constant monitoring. Tools like futures contracts are used.

Day Trading / Swing Trading (Short-Term Trading): Trades last from minutes to a few days. Benefit from daily volatility and rapid price movements. Requires continuous monitoring and intensive technical analysis. Tools like CFDs are used.

Each style has its advantages. Long-term trading is less stressful but requires patience. Short-term trading yields faster results but demands high discipline and emotional control.

Advantages: Why Millions Choose Forex Trading

✅ Continuous availability: The market is open 24 hours, 5 days a week. No time restrictions on trading.

✅ Low capital requirements: Leverage allows traders to start with relatively small capital.

✅ Exceptional liquidity: Billions of dollars move daily, enabling easy execution of trades and narrow spreads.

✅ Various profit opportunities: Whether prices go up or down, you can profit. You don’t need a bullish market only.

✅ Low costs: No high commissions. The broker earns from the small difference between bid and ask prices.

Challenges: Things You Need to Know

❌ High risks: Using leverage can lead to losing your entire capital if prices move against you.

❌ Sharp volatility: Currency prices move quickly based on news and new events. You can lose large amounts in minutes.

❌ Steep learning curve: Understanding technical and fundamental analysis and risk management takes time and effort. Early mistakes are costly.

❌ 24/7 risks: The market moves even when you sleep. Prices may have moved significantly by the time you wake up.

Popular Trading Strategies

1- Scalping (Scalping): Opening and closing trades within minutes or seconds. Achieves small, frequent profits. Suitable for ultra-short-term trades.

2- Day Trading (Day Trading): Opening and closing trades within the same day. Avoids overnight risk. Focuses on daily movements.

3- Swing Trading (Swing Trading): Holding trades for several days or weeks. Benefits from medium-term trends. Balances speed and patience.

4- Trend Following (Trend Following): Identify the main trend (upward or downward) and trade with it. Use moving averages and other indicators.

Basic Technical Analysis Tools

Moving Averages: Help you see the overall trend and ignore small random fluctuations.

Relative Strength Index (RSI): Tells you if a currency is “overbought” (may fall) or “oversold” (may rise).

MACD Indicator: Shows the trend and helps detect potential market reversals.

Bollinger Bands: Reveal volatility levels and anticipate sudden movements.

Support and Resistance Levels: Specific price points where the price tends to pause and reverse (support and resistance). Very useful for entry and exit points.

Basic Tips to Get Started

1- Learn first, then trade: Don’t rush. Study the market thoroughly before depositing real money.

2- Start with a demo account: Most brokers offer demo accounts with virtual funds. Use them to practice strategies risk-free.

3- Have a clear plan: Define your trading goals, acceptable risk level, and the currency pairs you will focus on.

4- Use strict risk management: Always set stop-loss orders. Don’t risk more than 1-2% of your capital on a single trade.

5- Control your emotions: Fear and greed are your main enemies. Follow your plan with discipline and emotional stability.

6- Keep learning: The market changes. Read, watch videos, follow economic news. Never stop learning.

7- Test before scaling up: Start with small capital and gradually increase as you gain confidence and proficiency.

Summary: Forex Is Not for Everyone, But It Might Be for You

The forex market offers real profit opportunities with its high liquidity, continuous availability, and diverse strategies. But it also carries significant risks that require respect and training.

Success in forex trading requires three things: solid market knowledge, high discipline in applying strategies, and the ability to manage risks and emotions. Those who possess these three increase their chances of success significantly.

Whether you seek additional income or want to make trading your main profession, forex provides a clear path for learning and progress. The road is not easy, but it is possible for those with determination and commitment to continuous learning.