The currency trading (Foreign Exchange, Forex, FX) market is the most traded financial market in the world. Its daily volume surpasses $4 trillion. That is roughly more than three times the volume of the Stocks and Futures markets combined.

In the Forex market, currencies are traded by commercial banks, corporations, institutional investors, hedge funds and individuals like you, typically via brokers. In simple terms, it is where you can buy and sell currencies, simultaneously. The way it works is much like the process of currency exchange at airports or hotels where you can exchange the currency you deal with for the local currency.

More than anything else, the Forex market is a trader’s market. It’s a market that’s open around the clock six days a week, enabling traders to act on news and events as they happen.

Though once reserved for large institutions and wealthy individuals, the Internet revolution changed all of that and made the Forex market accessible to anyone, giving traders the opportunity to buy or sell for potential profits anytime.

History of currency trading

The modern Forex market was launched during the 1970s when countries gradually switched to floating exchange rates from the previous rate regime, which remained fixed as per the Bretton Woods System*.

*Initially, the value of goods was expressed in terms of other goods. Then the Bretton Woods agreement made room for a fixed system of exchange rates where the gold was its standard, i.e. fixing gold to the currencies. Although intended to be permanent, it all changed in the 1990s where the rise of the internet and new technological aspects allowed individual retail traders to connect with Forex dealers and start trading in what they call a free-floating system.

Forex Market Benefits

a) No Middlemen

The Forex market involves the trader, the Forex broker he works with (i.e. FXCM) and the market. So, in currency trading there are no middlemen between the trader and the broker. Therefore, the trader is at liberty to execute his trades online without having to go through a central exchange, hence saving time and additional fees.

b) 24 hours trading

Forex traders have the opportunity to trade 24 hours a day, 5 days a week. This gives traders the ability to trade whenever they want and to react instantly to any breaking news.

The markets are open for trading from Sunday 5pm (ET) through Friday 4pm (ET).

Trading begins in New Zealand, followed by Australia, Asia, the Middle East, Europe and America.

Currency trading doesn’t even stop for holidays. Even though it’s a holiday in one financial center, other financial centers may still be open. About the only holiday in common around the world is New Year’s Day (and even that depends on which day it falls on).

c) High levels of liquidity

High trading volumes in this currency market provide extreme liquidity. For traders, liquidity is a key consideration because it determines how quickly prices move between trades and over time. A highly liquid market sees large trading volumes executed with relatively minor price changes. Therefore, what moves currency prices is the market’s demand for it.

d) No commission

Forex trading is “free of commission”, which means that you can keep 100% of your trading profits. All you pay is the spread. This is especially appealing for traders.

e) Steady trading prospects – Profit in both rising and falling markets

The markets are volatile and continuously moving. Forex trading involves buying and selling currencies, so traders are dealing in either a rising or falling market. This is because trading prospects exist whether a currency is rising or weakening in relation to another currency. In other words, there is always a profit potential in the Forex market.

f) Leverage

Forex traders trade the market using leverage*. This gives traders the opportunity to trade more money on the market that what they actually put into it. For example, if a trader is trading at 100:1 leverage and puts in $100, he/she could trade $100 for every $1 they put into their account. This means that traders can control a trade of $10,000 using only $100 of capital.

g) Free Demo Account, News, Charts and Analysis

Forex companies usually offer the possibility to download a practice account, thus allowing new traders to test their market strategies and to assimilate the platform’s functionality. Additionally, traders can access daily news, charts and analysis to keep track of market movements and predictions.

Practice accounts are a risk-free way to enter and understand the forex markets.

Free Practice account