You've already participated in the Forex market. Every time you exchange currency at an airport, you're trading in the world's largest financial market—$7.5 trillion changes hands daily. But while tourists trade hundreds, institutions trade billions. The same mechanism that converts your dollars to euros powers global commerce, central bank policy, and professional speculation. Understanding this market isn't just academic—it's the foundation for every profitable trade you'll ever make.
Welcome to Lesson 1
Have you ever traveled overseas and exchanged your home currency for local money? You've already participated in the Forex market.
Most people think of Forex (Foreign Exchange) only in terms of changing money at an airport kiosk. But here's the reality:
Forex is the largest, most liquid, most accessible financial market in the world.
The Professional Difference: Retail traders think Forex is "complicated" and "risky." Professionals know Forex is the MOST transparent, liquid, and fair market available to retail participants. Why? $7.5 trillion daily volume makes price manipulation nearly impossible. 24/5 operation means no overnight gaps (unlike stocks). Leverage allows small accounts to build meaningful positions. The "risk" isn't the market—it's poor risk management. Master the fundamentals, and Forex becomes the most accessible path to financial markets.
Lesson Chapters
1Chapter 1: Defining Forex - The Core Mechanism⏱️ ~3 min
What is Foreign Exchange (Forex or FX)?
Forex = FOReign EXchange
Definition: The process of exchanging one currency for another at an agreed-upon price, known as the exchange rate.
The Fundamental Transaction:
Every Forex trade involves simultaneously buying one currency and selling another. You cannot buy a currency in isolation—you always exchange it for something else.
Example:
- You believe the Euro will strengthen vs. the US Dollar
- You buy EUR/USD (buy Euro, sell Dollar)
- Exchange rate: 1.0850 (1 Euro costs 1.0850 US Dollars)
- If Euro strengthens to 1.0950, you profit 100 pips
Three Primary Functions of Forex
The Forex market serves three massive purposes in the global economy:
1. Commercial Necessity (Trade & Business)
Purpose: Facilitate international commerce
Examples:
- Apple sells iPhones in Europe, receives Euros, must convert to USD
- Toyota exports cars to USA, receives USD, must convert to JPY
- Unilever pays employees in 20+ countries in local currencies
Impact on Market:
- Creates consistent, predictable volume
- Non-directional (companies don't speculate, just convert)
- Provides baseline liquidity
2. Hedging (Risk Mitigation)
Purpose: Protect against adverse currency movements
Examples:
- Tesla has €500M receivable due in 6 months
- Risk: Euro might weaken, reducing USD value
- Hedge: Sell EUR/USD forward contract to lock in current rate
3. Speculation (Profit-Seeking)
Purpose: Profit from currency price movements
Examples:
- Hedge Fund analyzes Fed policy, expects USD to strengthen
- Action: Sells EUR/USD, GBP/USD, AUD/USD (shorting non-USD)
- Retail Trader (You) identifies technical pattern
- Action: Buys GBP/USD at support level
Impact on Market:
- 90%+ of daily volume
- Creates trends and volatility
- This is where YOUR opportunity exists
2Chapter 2: The Scale of the Market⏱️ ~3 min
The sheer size of the Forex market gives it unique characteristics that benefit traders.
The $7.5 Trillion Market
Daily Trading Volume: $7.5 trillion (Bank for International Settlements, 2022)
Perspective:
| Market | Daily Volume | Comparison |
|---|---|---|
| Forex | $7.5 trillion | — |
| All Global Stock Markets | $2.0 trillion | Forex is 3.75x larger |
| US Stock Market (NYSE) | $500 billion | Forex is 15x larger |
| Bitcoin/Crypto | $100 billion | Forex is 75x larger |
What This Means:
- Forex is the most liquid market on Earth
- More buyers/sellers = easier execution
- Harder to manipulate (no single entity can control it)
The Critical Role of Liquidity
Liquidity = The ease with which an asset can be bought or sold without significantly affecting its price
High Liquidity Benefits:
1. Instant Execution
- Place order for 1.00 lot EUR/USD ($100,000 position)
- Fills in milliseconds at quoted price
- No waiting for counterparty
2. Tight Spreads (Low Transaction Cost)
Major Pairs (High Liquidity):
- EUR/USD spread: 0.5-1.0 pips
- Cost per trade: $5-$10 (1.00 lot)
Exotic Pairs (Low Liquidity):
- USD/TRY spread: 20-50 pips
- Cost per trade: $200-$500 (1.00 lot)
3. Fair Pricing
- $7.5 trillion volume makes manipulation nearly impossible
- Price reflects true supply/demand
- No single entity can move major pairs significantly
Professional Insight: Liquidity varies dramatically by time and pair. EUR/USD during London/NY overlap (8 AM - 12 PM EST) has 10x the liquidity of Asian session (7 PM - 2 AM EST). This is why professionals trade major pairs during peak sessions—tightest spreads, best execution, lowest cost.
3Chapter 3: The Forex Ecosystem⏱️ ~4 min
The price action you see on your chart is the result of trillions of dollars flowing between diverse participants in a tiered hierarchy.
The Forex Market Hierarchy
Tier 1: The Interbank Market (The Giants)
Participants:
- Largest global investment banks
- Examples: J.P. Morgan, Citibank, Deutsche Bank, UBS, Goldman Sachs
Role:
- Trade directly with each other (peer-to-peer)
- Handle $5+ trillion of daily volume
- Set the wholesale exchange rates (tightest spreads)
- Act as primary market makers
Impact on Your Trading:
- Their prices flow down to retail brokers
- Their large orders create order blocks (institutional footprints)
- Advanced traders track their positioning
Tier 2: Central Banks and Governments
Participants:
- Federal Reserve (USA)
- European Central Bank (ECB)
- Bank of Japan (BoJ)
- Bank of England (BoE)
Role:
- NOT profit-seeking (goal = economic stability)
- Control interest rates (primary currency influence tool)
- Intervene in markets to prevent extreme moves
Impact on Your Trading:
- Central bank announcements = highest volatility events
- Rate decisions move markets 100-300 pips instantly
- Must monitor central bank calendars
Tier 3: Institutional Investors and Corporations
A. Hedge Funds and Asset Managers
- Bridgewater Associates, Renaissance Technologies, Citadel
- Speculative trading (profit-seeking)
- Create trends (hold for days/weeks/months)
B. Multinational Corporations (MNCs)
- Apple, Toyota, Unilever, Shell
- Convert revenue/pay expenses in foreign currencies
- Provides baseline liquidity
Tier 4: Retail Traders (You)
Access:
- Trade through retail Forex brokers
- Brokers aggregate orders and route to Tier 1-3
Volume:
- Individual: $1,000 - $1,000,000 per trade
- Collective retail: ~$750 billion daily (10% of market)
Your Role:
- Speculate on price direction
- Ride trends created by Tiers 1-3
- Use technical/fundamental analysis
4Chapter 4: How Currencies Are Traded⏱️ ~3 min
The Iron Law of Forex: You never trade a single currency in isolation. You always trade two currencies simultaneously in a pair.
Base Currency vs. Quote Currency
Every Forex quote follows this format:
EUR/USD = 1.0850
Structure:
| Component | Currency | Position | Meaning |
|---|---|---|---|
| Base Currency | EUR (Euro) | First (Left) | The reference unit (always = 1) |
| Quote Currency | USD (Dollar) | Second (Right) | The amount needed to buy 1 unit of base |
Reading the Quote:
EUR/USD = 1.0850
Translation: 1 Euro costs 1.0850 US Dollars
Understanding Buy and Sell (Long and Short)
When you execute a trade, you're expressing a directional opinion on the base currency:
BUY (Go Long):
What You're Doing:
- Buying the Base Currency
- Selling the Quote Currency
Example: BUY EUR/USD at 1.0850
- You buy Euros
- You sell US Dollars
- Expectation: Euro will strengthen vs. Dollar (rate will rise)
Profit Scenario:
- Entry: 1.0850
- Exit: 1.0950
- Profit: 100 pips (rate went UP)
SELL (Go Short):
What You're Doing:
- Selling the Base Currency
- Buying the Quote Currency
Example: SELL EUR/USD at 1.0850
- You sell Euros
- You buy US Dollars
- Expectation: Euro will weaken vs. Dollar (rate will fall)
Profit Scenario:
- Entry: 1.0850
- Exit: 1.0750
- Profit: 100 pips (rate went DOWN)
5Chapter 5: Major Forex Trading Sessions⏱️ ~4 min
The Forex market's 24/5 operation is a massive advantage—but not all hours are equal.
The Four Primary Trading Sessions
| Session | Primary Centers | Active Hours (EST) | Characteristics |
|---|---|---|---|
| Asian 🌏 | Tokyo, Sydney, Singapore | 7:00 PM - 4:00 AM | Lower liquidity, range-bound |
| European 🇪🇺 | London, Frankfurt, Zurich | 2:00 AM - 11:00 AM | Highest liquidity, most active |
| North American 🇺🇸 | New York, Toronto, Chicago | 8:00 AM - 5:00 PM | High volume, US news-driven |
| Pacific 🌊 | Wellington, Sydney | 5:00 PM - 2:00 AM | Lowest liquidity |
The Overlaps (The Volatility Windows)
The most active trading periods occur when sessions overlap:
1. London/New York Overlap (8:00 AM - 12:00 PM EST)
Characteristics:
- Highest volume of the day
- Both major financial hubs active
- 70%+ of daily volume occurs here
- Tightest spreads (0.5 pips on EUR/USD)
Best For:
- Day trading and scalping
- Trading major news releases (NFP, CPI, Fed)
- Breakout strategies
- High-probability setups
Major Pairs to Trade:
- EUR/USD (most liquid)
- GBP/USD (high volatility)
- USD/JPY (consistent movement)
2. Dead Zones (Avoid These Times)
Asian Session (No Overlap):
- 9:00 PM - 2:00 AM EST
- Low liquidity
- Wide spreads (1.5-3 pips on EUR/USD)
- Choppy, range-bound price action
- Avoid unless trading JPY/AUD/NZD pairs
Friday Late Afternoon:
- 3:00 PM - 5:00 PM EST
- Liquidity drains (traders closing for weekend)
- Spreads widen
- Avoid new positions (weekend gap risk)
Professional Session Strategy: Trade EUR/USD, GBP/USD during London/NY overlap (8 AM - 12 PM EST) for tightest spreads and highest probability setups. Trade USD/JPY during Asian/London overlap (2 AM - 4 AM EST). Avoid trading major pairs during dead Asian session (9 PM - 2 AM EST) unless you're targeting range-bound strategies.
6Chapter 6: Summary, FAQs & Quiz⏱️ ~5 min
Summary
Key Principles (0/5)
Frequently Asked Questions
Q1: Is Forex trading safe?
Short answer: Forex isn't "safe"—but it's FAIR. Safety depends on YOUR risk management.
How to Trade Safely:
- ✅ Use regulated broker (FCA, ASIC, NFA licensed)
- ✅ Risk maximum 1-2% per trade
- ✅ Trade with capital you can afford to lose
- ✅ Practice on demo for 3+ months before going live
- ✅ Never trade without a stop loss
Q2: Can I start trading Forex with a small account?
Yes—and you SHOULD start small.
Minimum Account Sizes:
| Account Type | Minimum Deposit | Lot Sizes Available | Best For |
|---|---|---|---|
| Micro Account | $100-$500 | 0.01 lots (Micro) | Absolute beginners |
| Mini Account | $500-$2,000 | 0.10 lots (Mini) | Learning traders |
| Standard Account | $5,000+ | 1.00 lots (Standard) | Experienced traders |
Quiz
What is the approximate daily trading volume of the global Forex market?
In the currency pair EUR/USD = 1.0850, which currency is the Base Currency?
Which Forex trading session overlap produces the highest liquidity and volatility?
What is the primary role of Central Banks in the Forex market?
Which of the following is the PRIMARY driver of daily Forex volume and tradable trends?
Call to Action
Theory is essential, but practice builds confidence and competence.
Action Item: Move on to Lesson 2: Currency Pairs – Base, Quote, Major/Minor/Exotics to learn which pairs you should focus on.
Start Your Free Demo Account
Practice Forex trading with virtual money under real market conditions. Master the fundamentals, test strategies, and build confidence before risking real capital. Professional traders spend months on demo—you should too.
Deriv
- ✅Zero-spread accounts for tighter entries
- ✅Swap-free (Islamic) available
XM
- ✅Consistently low spreads on majors
- ✅Micro accounts — start with a smaller risk
- ✅Swap-free (Islamic) available
- ✅No trading commission
🚀 Ready to see the market in action? Use our exclusive link to open your free demo account and begin your trading journey with zero risk!
Proceed to Lesson 2: Currency Pairs – Base, Quote, Major/Minor/Exotics
Prerequisites
This is the first lesson in the Introduction to Forex course. No prior knowledge required.
Ready to discover the world's largest financial market? Understanding what Forex is and how it works is essential for every trading decision you'll make.
Ready to continue?
Mark this lesson as complete to track your progress.