**Understanding Forex: A Complete Beginner’s Guide to the Foreign Exchange Market**
*Based on insights from the video by Adam Khoo: “Forex Trading for Beginners – Full Course”*
The foreign exchange (forex) market is the largest and most liquid financial market in the world, with an average daily trading volume exceeding $6 trillion. Currencies are traded in pairs, such as EUR/USD or GBP/JPY, and traders speculate on the direction of one currency’s value against another. Whether you’re an aspiring trader or simply curious about how global currency markets operate, this guide—synthesized from Adam Khoo’s insights and additional resources—will provide a detailed introduction to the world of forex trading.
## What is Forex?
Forex, short for “foreign exchange,” refers to the process of buying and selling currencies. Unlike markets such as stocks or commodities, forex is decentralized and operates 24 hours a day from Monday to Friday.
### Key Characteristics of Forex Trading:
– **Decentralized Market**: Forex is traded over the counter (OTC), meaning it has no centralized exchange like the New York Stock Exchange.
– **High Liquidity**: Due to the massive volume of trading, it’s easy for traders to enter and exit positions without major price effects.
– **24-Hour Operation**: The market functions nonstop from Sunday evening to Friday evening, cycling through major trading sessions (Sydney, Tokyo, London, and New York).
– **Leveraged Trading**: Brokers often offer leverage up to 100:1 or higher, allowing traders to control large positions with relatively small capital.
– **Currency Pairs**: Trading involves currency pairs, such as USD/JPY or EUR/USD. When trading a pair, you are buying one currency and selling the other.
## How Forex Trading Works
At its core, forex trading aims to profit from changes in one currency’s value relative to another. For example, if a trader believes the Euro will strengthen against the U.S. Dollar, they might buy the EUR/USD pair. If the pair rises in price, they earn a profit.
### Major Market Sessions:
– **Asian Session (Tokyo)**: Begins at 11 PM GMT. Includes regions like Japan, China, and Australia.
– **European Session (London)**: Starts at 7 AM GMT. The most liquid session, with heavy participation and spreads at their narrowest.
– **North American Session (New York)**: Starts at noon GMT. It overlaps with the London session, resulting in high volatility and trading volume.
### Types of Currency Pairs:
1. **Major Pairs**: Involve the U.S. dollar and other major economies. Examples:
– EUR/USD
– GBP/USD
– USD/JPY
– USD/CHF
2. **Minor Pairs (Crosses)**: Involve major currencies excluding the U.S. dollar.
– EUR/GBP
– AUD/JPY
– GBP/JPY
3. **Exotic Pairs**: Combine a major currency with a currency from an emerging or smaller economy.
– USD/TRY (U.S. Dollar/Turkish Lira)
– EUR/SEK (Euro/Swedish Krona)
## Key Concepts in Forex Trading
### 1. Pips
A pip is the smallest price movement in the forex market. It typically represents a 0.0001 price change for most currency pairs. For example, if EUR/USD moves from 1.1050 to 1.1051, the change is one pip. For currency pairs involving the Japanese yen, a pip is often 0.01.
### 2. Lots
Forex is traded in standardized units called lots. The three common lot sizes are:
– **Standard Lot**: 100,000 units
– **Mini Lot**: 10,000 units
– **Micro Lot**: 1,000 units
Each pip
Read more on USD/CAD trading.