Trading forex: Need to know

Trading Forex has been crucial for individuals, conglomerates, and governments. Both novice and experienced traders have to understand the basics of this market.

The forex market enables exchanging currencies from all over the world.

Before investing, traders have to understand technical terms such as spread, pips, and leverage.

The U.S. Dollar is the most vital currency in the forex market.

Forex market gives access to trading 24/5, unlike equities and indices.

What is forex about?

The forex market, short for the foreign exchange market, is where traders, institutions, and governments buy, sell, and exchange currencies. It is the largest and most liquid financial market in the world, with daily trading volume exceeding $9 trillion in 2025.

Forex trading focuses on the price movements of currency pairs. One of the most commonly traded pairs is EURUSD. A currency pair represents two currencies traded against each other, where the first currency is the base currency and the second is the quote currency.

Compared to cryptocurrencies, which have grown due to their decentralized nature and innovative technology, the forex market remains a core part of the global financial system. It facilitates international trade and investment, allowing companies and governments to convert foreign earnings into their domestic currency.

Traders can profit or incur losses from fluctuations in exchange rates. The forex market generally exhibits lower volatility than the cryptocurrency market.

Trading with forex: Most important terms

Understanding the basics of trading with forex is fundamental for anyone looking to navigate this complex market properly. Getting familiar with critical terms not only enhances the ability to make informed decisions but also equips traders with tools to manage the risk of potential losses. Both novice and seasoned investors can find multiple terms explained in video tutorials presented by SimpleFX.

One of the most essential terms in trading forex is pips, which stands for “percentage in point.” It represents a standard unit of price movement. For example, in the USDCAD currency pair, one pip usually corresponds to the fourth decimal place of the exchange rate. If USDCAD moves from 1.2650 to 1.2651, the price has increased by one pip. This unit helps traders measure price changes and calculate potential profits or losses.

Another important concept is the spread, which is the difference between the bid price (the price buyers are willing to pay) and the ask price (the price sellers are willing to accept). For example, if the GBPUSD bid price is 1.3550 and the ask price is 1.3555, the spread is five pips. The spread represents one of the main costs of trading. A narrower spread usually indicates higher market liquidity and lower trading costs.

What is traded in forex?

In the forex market, currencies are traded in pairs, where each pair represents the value of one currency relative to another. The most commonly traded instruments are major currency pairs, such as EURUSD, which pairs the euro with the U.S. dollar.

Another category is minor currency pairs, also known as cross pairs. These pairs do not include the U.S. dollar but still involve major global currencies. Examples include EURGBP, EURJPY, or AUDNZD. Minor pairs generally offer good liquidity but may have slightly wider spreads compared to major pairs.

During the Asian trading session, pairs such as USDJPY are among the most actively traded. Major pairs typically include the U.S. dollar and are known for their high liquidity and relatively tight spreads.

In contrast, exotic currency pairs combine one major currency with the currency of an emerging or smaller economy. Examples include USDTRY or EURZAR. These pairs often have lower liquidity, wider spreads, and higher volatility compared to major pairs.

Besides currencies, traders may also explore other financial markets such as equities. While forex and stock trading share some basic principles, they differ in several ways. The forex market generally offers higher liquidity and operates 24 hours a day during the trading week. Stocks represent ownership in companies and may provide dividends, while forex trading focuses on exchange rate movements driven by macroeconomic conditions and monetary policy.

U.S. Dollar: A key player in the forex market

The U.S. Dollar plays an essential role in the forex market, serving as the world’s most traded and recognized currency. As the most liquid currency in the world, USD forex pairs typically offer tight spreads and high trading volumes. Moreover, it facilitates international trade and serves as a benchmark for many commodities, such as oil and gold. For instance, when the USD strengthens, commodities priced in USD tend to become more expensive for foreign buyers, often leading to a drop in demand and a subsequent price decline.

Several factors can influence the USD, ultimately impacting the entire Forex market. Economic reports like the Non-Farm Payroll (NFP) provide insights into the U.S. labor market. Interest rate changes set by the Federal Reserve are another major factor, as rising rates usually strengthen the USD by attracting more foreign investment. Geopolitical events and trade policies can also sway the dollar.

Forex hours in trading

One of the unique aspects of forex trading is that the market operates 24 hours a day, five days a week. This schedule allows traders to explore worldwide markets, starting with the opening of the Asian session on Monday morning and continuing to the New York session’s close on Friday evening. As trading hours flow from one financial center to another, liquidity and market activity follow, providing potential options around the clock.

Forex hours in trading differ significantly from indices like the S&P500 or STOXX50. Indices represent a basket of top-performing equities from specific markets, and their trading hours are tied to national stock exchanges opening times. For example, Dow Jones reflects the U.S. stock market, so its core trading hours align with the New York Stock Exchange (NYSE) and NASDAQ, which operate between 9.30 AM and 4.00 PM Eastern Time.

How to learn trading forex?

Staying updated on market trends and global economic events is essential for those eager to learn trading forex effectively. A crucial tool in any trader’s arsenal is the economic calendar on SimpleFX, which provides a schedule of key economic releases, policy decisions, and other events that can impact currency movements.

SimpleFX also provides traders with practical tools like leverage, enabling them to control more prominent positions with a smaller capital investment. However, leverage should be used carefully, as it can result in gains and losses. To further enhance their trading skills, users can explore the SimpleFX Academy. These resources cover foundational concepts, and advanced strategies.