š¹ Definition
Forex (FX) Trading refers to the global, decentralized marketplace where participants buy, sell, exchange, and speculate on foreign currencies. The foreign exchange market is the largest and most liquid financial market in the world, with a daily trading volume exceeding US$7 trillion. Forex trading takes place 24 hours a day, five days a week, across major financial centers such as London, New York, Tokyo, and Singapore.
Forex trading can involve spot transactions, forwards, options, and leveraged margin trading, and is commonly conducted by banks, corporations, institutional investors, and retail traders.
š¹ Frequently Asked Questions (FAQs)
Q1: How does forex trading work?
Forex trading involves the simultaneous exchange of one currency for another in currency pairs (e.g., EUR/USD, USD/JPY). Traders speculate on the relative price movements of these pairs using:
- Spot trading for immediate settlement
- Forward contracts for future settlement at predetermined rates
- Derivatives for hedging or leveraged speculation
Q2: Who participates in the forex market?
- Central banks and governments
- Commercial banks and financial institutions
- Corporations engaging in cross-border trade
- Hedge funds and investment firms
- Retail traders using online brokerage platforms
Q3: What are the risks associated with FX trading?
- High volatility and sudden price movements
- Leverage risk, which can amplify both gains and losses
- Counterparty risk, especially with unregulated brokers
- Market manipulation, insider trading, or front-running in less regulated venues
Q4: How is forex trading regulated?
Forex regulation varies by jurisdiction. Key regulatory bodies include:
- CFTC/NFA ā United States
- FCA ā United Kingdom
- ASIC ā Australia
- MAS ā Singapore
Licensed brokers must follow rules regarding capital adequacy, client fund segregation, leverage limits, and anti-money laundering (AML) compliance.
Q5: What is the role of compliance in forex trading?
- Monitoring for market abuse (e.g., spoofing, layering)
- Enforcing AML/CFT controls, especially for high-volume or offshore clients
- Ensuring risk disclosures, especially for retail investors
- Reporting suspicious transactions and maintaining trade audit trails
