**Introduction to Forex Trading: A Comprehensive Guide**
*Original video/article by Nick Leeson (YouTube link: https://www.youtube.com/watch?v=_e8SxZWjME8). Additional references drawn from Investopedia and Babypips.*
Forex, also known as the foreign exchange market or FX, is the world’s largest financial market, with daily turnover exceeding $6 trillion as of 2022. Global currencies are traded in pairs, allowing participants to profit from price movements between these pairs. While forex trading can be lucrative, it carries significant risk due to market volatility and leverage. This article provides an in-depth understanding of forex trading, its mechanics, major participants, trading strategies, and risk management, drawing from Nick Leeson’s content and other reputable sources.
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## What is Forex Trading?
Forex trading involves the exchange of one currency for another at an agreed price on the over-the-counter (OTC) market. Unlike stock markets that have centralized exchanges, forex is decentralized and operates electronically across a global network of banks, brokers, dealers, and traders.
– Forex stands for “foreign exchange.”
– Currencies are traded in pairs (e.g., EUR/USD, GBP/JPY).
– The goal is to profit from fluctuations in the exchange rate between two currencies.
– Trading is conducted 24 hours a day, five days a week, allowing for flexibility for traders worldwide.
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## The Structure of the Forex Market
**1. Interbank Market:**
– Comprises major banks and financial institutions.
– Largest and most liquid segment; sets the tone for overall market conditions.
– High-volume transactions; not directly accessible to retail traders.
**2. Over-the-Counter (OTC) Market:**
– Decentralized trading among parties via electronic networks or telephones.
– Retail brokers provide access to this market for individual traders.
**3. Retail Market:**
– Made up of individual traders and small businesses.
– Accessed via brokers or electronic trading platforms.
– Smaller transaction sizes than the interbank market.
**4. Online Platforms:**
– MetaTrader 4/5 (MT4/5), cTrader, and other proprietary broker platforms are commonly used.
– Provide analytical tools, charting, order execution capabilities.
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## Key Forex Players
The forex market includes a variety of participants, each with different purposes and strategies:
– **Central Banks:** Influence markets through interest rate changes, direct intervention, and policies to manage their currencies.
– **Commercial Banks:** Execute bulk transactions for clients and for their own trading books.
– **Hedge Funds/Investment Managers:** Trade large volumes for portfolio hedging or directional positions.
– **Corporations:** Exchange currencies for international trade and to hedge currency risk.
– **Retail Traders:** Individuals speculating or hedging currency exposure, typically via online brokers.
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## Major Currency Pairs
In the forex market, currencies are quoted in pairs, indicating the exchange
Read more on AUD/USD trading.