What Is Forex Trading And How Does It Work?

Forex trading has been the largest liquid financial market of all times. It is not only popular in India but around the globe. A trading volume of over $5 trillion is estimated in the currency market daily. U.S. dollars currently dominate it. 

Forex Trading can be performed everywhere, like on an online platform, in the share market, or real market. Forex trades can be done through banks each day except weekends. Also, it operates twenty-four hours a day.

What is Forex Trading?

Forex Trading, also known as foreign exchange trading, includes the exchange of national currencies in the global marketplace. It involves general aspects of buying and selling in a market, and the currencies exchanged between different parts of the world. 

As it works globally, its activities are not owned or controlled by a single authority. It has a decentralized structure where multiple banks, institutions, and governments are involved from various parts of the world. 

Forex Trading is mostly done to earn profits due to the different relative values of currencies in different countries. For example, one may buy dollars during its fall in Indian currency and sell the same during inflation of the Indian currency market, thus making a profit. 

Forex Trading for beginners

As a beginner in forex trading, one must be prepared. Such trading can be done at a profit or sometimes at losses. But a deep understanding of the topic is important to lead a profitable forex trade. 

Some of the necessary preparations before trading with foreign currencies may include:

  • Basic knowledge: To begin with, forex trading starts with a good research plan. Learn about the different currencies and the different economies around the world. Though understanding the mechanics of how the forex market works may be challenging, it is important to yield a profitable trade.
  • Strategy: With forex trading, a strategy is always needed. Identify your goals and compare them with the mechanics and data accumulated in research to develop a solid strategy. Consider your risk tolerance and other factors that may have a relevant impact on the trade.
  • Demo account: Before you risk any real money in the market, try to play with virtual money. A demo account allows you to practice trading without any risk. The different strategies planned could be used here to test their effectiveness. After a few attempts, one will get familiar with the market. 
  • Simple: People share countless ways and advice regarding forex trading. Only a good knowledge of the basics and practice in implementing different strategies could lead one to success. But try to keep things simple. Refrain from complicating your trade unnecessarily. 
  • Risk management: Try and implement different techniques to minimize the risks as much as possible. Many risk management tools are also available to analyze the amount of risk and make decisions. It helps traders to limit their potential losses.
  • Knowledge: Apart from basic mechanics, it is also important for a forex trader to be up-to-date with the latest market trends and recent news. Even a small amount of information can affect the market dramatically. 

Concepts of Forex Trade

There are various concepts to learn and include in developing a strategy while attempting a profitable forex trade. A good knowledge of these concepts can help hit the perfect decision to achieve the set goals. Some of them include the following: 

  • Spread: The forex spread is the difference between the buying and the selling rate of a forex broker when trading currencies. The scope of a spread depends on the currency involved, the time when trade is initiated, and its economic conditions. The spread in forex occurs due to the changes between the sell and buy price of a currency. 
  • Leverage: It helps a trader to gain control over a larger position in the market by the use of borrowed capital. 
  • Margin: With a forex market trade, there is a certain amount of money to be deposited to operate on trades. The amount held is known as the margin amount.
  • Paired currency: In a forex trade market, currencies exist in pairs. For instance, an INR/USD pair would imply purchasing in rupees and selling in dollars. It represents the value of rupees in relation to US dollars. 

How is Forex Trading different from Stock Trading?

While Forex Trading includes exchange of currencies at the foreign exchange market globally, stock trading is about purchasing and selling shares of listed public companies on stock exchange. Forex markets deal with currencies of different countries, whereas stock markets hold securities like shares and debentures. 

Another significant difference is that forex markets are large global markets with millions of dollars expected as a daily trading volume. But stock markets are accessible on stock exchange markets and have a smaller trading volume. 

Forex trading needs technical analysis to predict future price movements based on previous data and charts. Stock trading prefers fundamental analysis as it requires the knowledge of the financial condition of the company, its performance, and management to make trade-related decisions. It also makes the stock market less volatile than forex markets. 

Though Forex trading and stock trading are two different fields of trading with many differences, they share certain similarities too. Traders in both markets attempt to profit by purchasing it at lower prices to sell at higher rates. Both markets are deeply influenced and affected by external factors like political, economical, or social changes. 

Pros and Cons of Forex Trading

Forex trading is a great way to generate some extra revenue. But it also involves high-risk factors. Losing all the money invested is also possible sometimes. Thus, Forex trading also has its set of advantages and drawbacks. 

Some of the good points for the popularity of Forex markets include: 

  • Forex Trading is the most liquid daily trading market, making it quite easy for a trader to enter or exit the market. 
  • It works twenty-four hours for five days globally. It also runs for half a day on the last day of the week.
  • Its main centres are London, Tokyo, Sydney, Paris, and Hong Kong. Due to its horizontal timing, it gives various opportunities to make a profit.
  • Forex Trading requires less capital than stocks. 
  • It has a key feature of decentralization with multiple banks and governments making it globally accessible. 

While there are some good reasons to trade in the forex market, there are other reasons to make one think twice before trading. Some cons of Forex trading would be:

  • They are highly volatile due to their liquidity.
  • There are higher risks involved. Many traders have become insolvent. 
  • Forex Trading mechanics take time to understand and practice. 
  • There needs to be more accountability in a forex market compared to others.
  • There need to be more instruments to provide regular income. 
  • It mainly attracts investors who expect few exponential returns.

Best Computers and Laptops for Forex Trading 

A lack of tools may affect one’s trading experience. Forex trading being operated online makes it essential to try a computer or laptop for trading. Purchasing a quality computer can become overwhelming with so many features and characteristics to look for, such as RAM, GPU, Hard Drive, Battery Life Display, and weight. Also, a good internet connection is necessary to access the forex markets.

Some of the best computers or laptops for trading may include:

  • Acer ConceptD 7
  • MSI GP65 Leopard
  • Dell XPS 17, Razer Blade Pro 17
  • Dell XPS Desktop
  • 16” MacBook Pro 2019
  • 27” iMac 2020
  • OMEN 30L
  • Acer Aspire TC
  • Build it. 
  • Apple MacBook Pro
  • Asus ROG Zephyrus G15
  • Lenovo ThinkPad X1 Extreme

Best Forex Trading platforms

Most of the trading is done online, so it’s important to look for a good forex Trading platform. Many trading platforms are available on the Internet, each satisfying the different needs of individuals. Some of the best Forex Trading platforms are FYERS App, FLYERS Direct, FYERS Web, and FYERS One, Vantage Academy. Others include eToro, cTrader, MetaTrader 4 and 5, NinjaTrader, and many more.

These are also known as forex brokers in the market. They help individuals to trade at the exchange market. Regulated by financial authorities, they comply with the specified regulations and standards. A forex broker must be chosen with great care as some unscrupulous brokers are found to be engaged in unethical or illegal practices. 

While choosing a platform for forex trading, one must do their research and comparison to make the perfect decision. 


Forex trading is a global market filled with uncertainties and risks. Refusing into the market without proper knowledge and research is a good idea. Sometimes, it may lead to huge losses too.

Forex trading aims to meet high leverages and can be the future market, spot market, and options trading.

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