Forex, also known as foreign exchange, FX or currency trading, is a decentralized global market where all the world's currencies trade. The forex market is the largest, most liquid market in the world with an average daily trading volume exceeding $5 trillion. There is no central exchange as it trades over the counter. Forex trading allows you to buy and sell currencies, similar to stock trading except you can do it 24 hours a day, five days a week, you have access to margin trading, and you gain exposure to international markets. For a more in-depth introduction to the forex market, get FXCM's New to Forex Trading Guide.
Learning to trade in a new market is like learning to speak a new language. It's easier when you have a good vocabulary and understand some basic ideas and concepts. So let's start with the basics of forex trading.
Forex is a commonly used abbreviation for "foreign exchange", and it is typically used to describe trading in the foreign exchange market by investors and speculators.
WHAT IS FOREX?What is Forex? video for FXCM1:54Imagine a situation where the U.S. dollar is expected to weaken in value relative to the euro. A forex trader in this situation will sell dollars and buy euros. If the euro strengthens, the purchasing power to buy dollars has now increased. The trader can now buy back more dollars than they had to begin with, making a profit. This is similar to stock trading. Stock traders will buy a stock if they think its price will rise in the future and sell a stock if they think its price will fall in the future. Similarly, forex traders will buy a currency pair if they expect its exchange rate will rise in the future and sell a currency pair if they expect its exchange rate will fall in the future.