What is forex trading? (With tips on how to get started)

By Indeed Editorial Team

Updated 18 November 2022

Published 9 May 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Many people view forex trading, or foreign exchange trading, as a way to make quick money, but it's actually a complicated process. To be successful at forex trading, it's helpful to have a thorough understanding of the different factors involved, including everything from economic indicators to political events. Without this knowledge, you may find it difficult to make consistent profits. In this article, we explain what forex trading is and why it's becoming more relevant, discuss its key components and provide some useful tips for beginners.

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What is forex trading?

Forex trading is a financial market where participants can buy, sell, exchange and speculate on foreign currencies. It's one of the most popular forms of investment because it's possible to make money whether the stock market is going up or down. Exchange rates fluctuate constantly, so traders attempt to buy currencies when they believe their value is going to rise and sell them when they believe their value is going to fall.

Forex traders are either individual investors or businesses. Many people start trading forex with a small amount of money to minimise their risk. Like any other form of investment, there are risks involved in forex trading. Having an in-depth understanding of forex before making any purchases is one of the best ways to avoid losing money in preventable ways.

Related: How to become a stock trader (with job and salary info)

Why forex trading is so popular?

In recent years, forex trading has become increasingly popular as more people look for alternative ways to invest their money. There are a number of reasons why forex trading is becoming more relevant, including the following:

  • Greater demand for foreign currency: As trade and travel become easier and cheaper, there's an increasing demand for foreign currency.

  • Online platforms make it accessible: Online platforms provide access to multiple markets around the world and allow users to trade with ease.

  • Can trade from any location: All that's necessary to trade is access to the internet and the market.

  • Available to trade throughout the week: Each foreign market has its own operating hours from Monday to Friday. This means that you can trade forex 24 hours a day, 5 days a week.

  • Low barrier for entry: With online platforms, you can start trading with only a small amount of capital, meaning that forex is accessible to independent traders.

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Things to consider for students and entry-level professionals in finance

With the rise of online forex trading platforms, more students and entry-level professionals are taking up forex trading as a way to make money. Before getting started with forex trading, understanding both the risks and rewards involved can help to set realistic expectations and minimise risk. Below are some factors to consider so you can make an informed decision about whether forex trading is suitable for you:

Forex transactions are available throughout the working week

One of the main advantages of forex trading is the global scale of the market. This means that there are markets all over the world where traders can buy and sell different currencies. Forex also functions 24 hours a day during every trading week and is usually active on all weekdays.

It's accessible for individuals

The number of people who can access foreign exchange markets is growing, which means that more people have the opportunity to trade in forex. While many forex investors are large institutions, online access to forex markets means that individual traders can benefit from trading on foreign exchange. The evolution of trading apps and online brokerages means that individual traders seeking long-term or short-term profits can engage with forex without dealing with middlemen.

It's cheaper to buy in

Another benefit of forex trading is that you can start with less money than with other types of investments. In addition, the fees to buy and sell currency are often lower than the fees associated with traditional stock markets. This limits the barrier for entry, improving accessibility. Being able to make more investments also increases your potential profit.

Exchange rates can fluctuate rapidly

The currency exchange rates can change a lot and this can be a concern for investors buying or selling foreign currency. The economy, politics and environmental concerns are just a few factors that can influence exchange rates. Even though traders can enter forex transactions cheaply, if exchange rate fluctuations affect earnings, this higher leverage could indicate greater losses.

There's no centralised regulator

Forex may include both spot markets and futures markets. The spot market is an unregulated market. In the futures markets, there are regulations to prevent price manipulation, but in the spot market, no one controls prices. One of the most important things to consider is that prices vary dramatically from broker to broker.

When to consider forex trading for your career

Trading in forex can be an exciting career choice for adventurous and driven individuals. If forex trading aligns with your skill set and interests, then it could be a great way to build your career. Here are three key factors before considering forex as a career choice :

Do you mind working non-traditional exchange and trading hours?

Finance professionals looking to make trades at any time during the day may enjoy the non-traditional exchange and trading hours of the forex market. While stock exchanges run exclusively during traditional business hours, meaning people can only buy and sell stocks during these hours, forex trading is the opposite. With forex trading, you can trade after hours across many exchanges because foreign markets are always open. If you prefer to only work traditional hours, forex may not be suitable for you.

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Are you good at analysing data?

It's easier to be successful in forex if you have an affinity for analysis and identifying trends. For example, being able to identify return expectancy helps to make sound investments. The return expectancy measures how often a transaction results in a gain or a loss. A positive rate means that there's a higher chance of getting a better return. A negative rate means that there's a lower chance of getting a good return from the investment. If you find large numbers and complex groups of data confusing, you may struggle to make profits.

Related: How to analyse data: definition, and skills

Is there a period of market growth?

If a country's economy is doing well, the value of its currency may go up. This is good for people who trade in foreign currencies because they can make more money. When other countries economies are doing well, it can lead to more volatility in the markets. This can be risky but it also can lead to higher profits.

How to start trading forex

Trading forex can be a profitable venture but it's important to understand the risks and how to start. This is often intimidating for beginners who are not familiar with the world of finance. The following steps can help you to start forex trading:

1. Do your research on forex

The forex market can be volatile, and without proper knowledge of the industry and its trends, you could end up losing money. There are resources available online that can help educate you on forex trading from the beginner to the advanced level. Some apps allow you to simulate forex trading without using real money. With proper research, you can put yourself in a good position to make informed choices and generate profits quickly without costly mistakes.

2. Set up your brokerage account

Whether you're just starting out in your career or are a student looking to invest, it's important to have a brokerage account. A brokerage account allows you to buy and sell stocks, bonds and other investments. This is where your money is held and where you can place your buy and sell orders. There are many different brokerage firms to choose from, so do your research and find one that fits your needs.

Related: What is a broker? 12 different types of brokerage services

3. Decide on your trading strategy

Before you start trading, establish a plan and identify what strategies you can use. This helps you to make better decisions and trade more effectively. There are many different approaches that traders use, so research each of them to decide which is right for you. Check your forex trading positions each day to minimise losses and protect your investments. By doing so, you can identify any potential problems and take corrective action.

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