1-What Is Forex - A Beginner's Guide

3/16/24, 4:00 PM What is Forex? A Beginner’s Guide - BabyPips.
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Quite simply, it’s the global financial market that allows

one to trade currencies.
If you think one currency will be stronger versus the other, and you end up
correct, then you can make a profit.
Once upon a time, before a global pandemic happened, people could actually
get on airplanes and travel internationally.
If you’ve ever traveled to another country, you usually had to find a currency
exchange booth at the airport, and then exchange the money you have in
your wallet into the currency of the country you are visiting.
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3/16/24, 4:00 PM What is Forex? A Beginner’s Guide - BabyPips.com
You go up to the counter and notice a screen displaying different exchange

rates for different currencies.
An exchange rate is the relative price of two currencies from two different
countries.
You find “Japanese yen” and think to yourself, “WOW! My one dollar is worth
100 yen?! And I have ten dollars! I’m going to be rich!!!”
When you do this, you’ve essentially participated in the forex market!
You’ve exchanged one currency for another.
Or in forex trading terms, assuming you’re an American visiting Japan, you’ve

sold dollars and bought yen.
Before you fly back home, you stop by the currency exchange booth to
exchange the yen that you miraculously have remaining (Tokyo is expensive!)
and notice the exchange rates have changed.
It’s these changes in the exchange rates that allow you to make money
in the foreign exchange market.
What is forex?
The foreign exchange market, which is usually known as “forex” or “FX,” is

the largest financial market in the world.
The FX market is a global, decentralized market where the world’s currencies

change hands. Exchange rates change by the second so the market is
constantly in flux.
Only a tiny percentage of currency transactions happen in the “real economy”

involving international trade and tourism like the airport example above.
Instead, most of the currency transactions that occur in the global foreign
exchange market are bought (and sold) for speculative reasons.
Currency traders (also known as currency speculators) buy currencies hoping

that they will be able to sell them at a higher price in the future.
Compared to the “measly” $200 billion per day volume of the New York Stock
Exchange (NYSE), the foreign exchange market looks absolutely ginormous
with its $6.6 TRILLION a day trade volume.
That’s trillion with a “t”.
Let’s take a moment to put this into perspective using monsters…
The largest stock market in the world, the New York Stock Exchange
(NYSE), trades a volume of about $200 billion each day. If we used a monster
to represent the NYSE, it would look like this…
Looks intimidating. Looks like it works out. Some may even find it sexy.
You hear about the NYSE in the news every day… on CNBC… on
Bloomberg…on BBC… heck, you even probably hear about it at your local
gym. “The NYSE is up today, blah, blah”.
When people talk about the “market”, they usually mean the stock market. So
the NYSE sounds big, it’s loud and likes to make a lot of noise.
But if you actually compare it to the forex market, it would look like this…
Oooh, the NYSE looks so puny compared to the forex market! It doesn’t stand
a chance!
Makes you wonder if the “S” in NYSE stands for “Stock” or for “Scrawny”? 🤣
The cryptocurrency market is even punier.
Check out the graph of the average daily trading volume for the forex market,
New York Stock Exchange, Tokyo Stock Exchange, and London Stock
Exchange:
The currency market is over 200 times BIGGER! It is HUGE!
But hold your horses, there’s a catch!
That huge $6.6 trillion number covers the entire global foreign exchange
market, BUT the “spot” market, which is the part of the currency market that’s
relevant to most forex traders is smaller at $2 trillion per day.
And then, if you just want to count the daily trading volume from retail
traders (that’s us), it’s even smaller.
It is very difficult to determine the exact size of the retail segment of the FX
market, but it’s estimated to be around 3-5% of overall daily FX trading
volumes, or around $200-300 billion (probably less).
So you see, the forex market is definitely huge, but not as huge as the others
would like you to believe.
Don’t believe the “forex is a $6.6 trillion market” hype! The huge number
sounds impressive, but a bit misleading. We don’t like to exaggerate. We just
keepin’ it real.
Aside from its size, the market also rarely closes! It’s open virtually round the
clock.
The forex market is open 24 hours a day and 5 days a week, only closing
down during the weekend. (What a bunch of slackers!)
So unlike the stock or bond markets, the forex market does NOT close at the
end of each business day.
Instead, trading just shifts to different financial centers around the world.
The day starts when traders wake up in Auckland/Wellington, then moves to

Sydney, Singapore, Hong Kong, Tokyo, Frankfurt, London, and finally, New
York, before trading starts all over again in New Zealand!
To help you know what’s happening in the forex market every day, we provide an FX
Market Snapshot tool. It’s a visual guide that summarizes current market activity, allowing
traders to quickly see and understand which major currencies are strong or volatile, and
which currency pairs have gained or lost the most.
In the next section, we’ll reveal WHAT exactly is traded in the forex market.
Next Lesson
What Is Traded In Forex?
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" Playing a small game all the time is not

safe. If you have only small gains, you won’t
provide for the many small losses you are
going to have."
- Larry Hite
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Babypips helps new traders learn about the forex and crypto markets without falling asleep.
We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy
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3/16/24, 4:00 PM What is Forex? A Beginner’s Guide - BabyPips.

Preschool What is Forex?

Quite simply, it’s the global financial market that allows

You go up to the counter and notice a screen displaying different exchange

When you do this, you’ve essentially participated in the forex market!

You’ve exchanged one currency for another.

Or in forex trading terms, assuming you’re an American visiting Japan, you’ve

The foreign exchange market, which is usually known as “forex” or “FX,” is

The FX market is a global, decentralized market where the world’s currencies

Only a tiny percentage of currency transactions happen in the “real economy”

Currency traders (also known as currency speculators) buy currencies hoping

That’s trillion with a “t”.

Let’s take a moment to put this into perspective using monsters…

The cryptocurrency market is even punier.

The currency market is over 200 times BIGGER! It is HUGE!

But hold your horses, there’s a catch!

The day starts when traders wake up in Auckland/Wellington, then moves to

What to Read Next...

" Playing a small game all the time is not

LEARN FOREX COMPANY FOREX TOOLS

How to Trade Forex About MarketMilk™

Forex Quizzes Contact Economic Calendar

Forex Forums Advertise Risk-On / Risk-Off Meter

Forex Glossary Newsletter Position Size Calculator

Forex Margin 101 Testimonials "Back to Breakeven" Calculator

Technical Analysis 101 FAQ Pip Value Calculator

Risk Management 101 Subscribe Pivot Point Calculator

Copyright © 2024 BabyPips.com LLC. All rights reserved.

Privacy Policy Risk Disclosure Terms of Use

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