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Forex

WHAT IS THE FOREX MARKET?

The forex market, or FX market, is where individuals, companies, and governments all trade currencies. In simple terms, the forex market is a marketplace for buying and selling money.

In contrast to stock and bond markets, the forex market is open 24 hours a day, 5 days a week. There is no reduction in trading volumes; rather, it simply shifts from one financial center to another. Sydney starts the day, followed by Tokyo, London, Frankfurt, and New York before returning to Sydney to repeat the process!

Compared to other international financial markets, including stocks, commodities, and bonds, the forex market is by far the largest.

The New York Stock Exchange trades an average of $22.4 billion per day, while the London Stock Exchange trades an average of $7.2 billion per day.

Those numbers seem large, don't they? Well, the forex market is even bigger, with $5.3 TRILLION in turnover!

The most appealing thing about forex trading is how accessible it is to regular people like you! People who trade the forex market from their own homes, known as 'retail traders,' require nothing more than a computer, interne t access, and a personal trading account with a broker like ECG Brokers.

THOSE NUMBERS SEEM LARGE, DON'T THEY?

Well, the forex market is even bigger, with $5.3 TRILLION in turnover!

The most appealing thing about forex trading is how accessible it is to regular people like you! People who trade the forex market from their own homes, known as 'retail traders,' require nothing more than a computer, internet access, and a personal trading account with a broker like ECG Brokers.

Is it possible to make a living trading forex alongside companies, governments, and central banks?

ECG Brokers offers a free demo account

TRADING FOREX IS EASY

Forex trading is easy to learn compared to other forms of investment. Compared to getting started in stocks, options, or futures trading, what you need to get started in forex trading is more modest.

Forex trading only requires a computer, an internet connection, and a willingness to learn! With just $250 you can open an account with ECG Brokers, a forex broker that offers a ton of free forex education.

Trade forex for a low price. As you just read, forex trading doesn’t require you to deposit tens of thousands of dollars into your account just to get started. As little as $250 can be deposited into your account to start trading forex.

Forex trading also has an advantage over stocks, options, and futures when it comes to entry and exit costs. In other markets and instruments, you can pay huge fees for a single trade entry or exit. Unlike stocks, you can trade Forex with just 0.01 of a standard lot, paying only the spread.

FOREX TRADING ANYWHERE, ANYTIME

Forex trading is not a 9 to 5 job that confines you to your desk. With Forex, you can trade anywhere, anytime. There's no limit to where and when you can trade.

Using a computer, laptop, web browser, tablet, or mobile phone, you can access your MetaTrader5 account. An internet connection is all you need. Continually monitor the markets and never pass up an opportunity to profit!

THE WORLD’S LARGEST MARKET

There are many stock charts that you have seen that have gaps scattered throughout them. Gaps mean that you cannot enter or exit a trade at those prices since no one is interested in buying or selling. For stock traders, this adds yet another layer of risk. Forex traders do not face this challenge.

Forex is the world's largest and most liquid market. Start your trading journey with ECG Brokers today with a FREE $50,000 demo account.

Forex Market Trading Hours

The forex market, as we explained in the what is forex section, is open 24 hours a day, five days a week. During the morning, as one part of the world wakes up, the trading center centers around that area and slowly shifts between financial centers.

Following is a list of the major forex trading sessions:

forex market trading hours

Generally, it is better to trade currency pairs during their corresponding sessions. Market moving news releases, such as AUD/USD, usually occur during the relatively quiet Sydney session. In contrast, EUR/GBP is unlikely to experience the same type of movement during Asia since Europe and the UK are both asleep.

The forex trading sessions actually overlap some of the time, as you can see. During these session cross-over times, trading forex is seen as one of the most advantageous as you have highly liquid market conditions where good quality moves often occur. How do they qualify as good quality moves?

If a move is made during the illiquid end to the New York trading session, it may be prone to a fake out rather than a sustained, predictable move. It would be better to take a break out trade during the London session open when the market is most liquid and moves are easiest. Be aware of important times, such as session openings and closings, when major market participants might be looking to open or close orders.

As with everything in forex, nothing is set in stone. During the relatively quiet Asian session, a break out does not necessarily mean it is a fake-out, as textbooks suggest.

Keeping up with forex session times and market moving news headlines is easy when you fund your live forex trading account with ECG Brokers.

Types of Forex Markets

Three are three key types of forex markets: spot, forward, and futures.

SPOT FOREX MARKET

In the spot market, currency is exchanged immediately between buyers and sellers at the current exchange rate. Most currency trading takes place on the spot market.

Commercial, investment, and central banks, as well as dealers, brokers, and speculators, are key participants in the spot market. Commercial and investment banks make up the majority of spot trades, trading not only for themselves but also for their clients.

FORWARD FOREX MARKET

On the forward market, two parties agree to trade a currency at a future date for a set price and quantity. During the trade, no currency is exchanged. Two parties can be companies, individuals, governments, etc. The forward market is useful for hedging purposes.

In contrast, forward markets lack centralized trading and are relatively illiquid (since there are only two parties involved). In addition, there is counter party risk, which is the risk that the other party will default.

FUTURES FOREX MARKET

Markets for futures are similar to markets for forwards in terms of their basic function. However, future markets use centralized exchanges, which is the major difference. Due to centralized exchanges, neither party is exposed to counterparty risks. As a result, futures markets are highly liquid, especially when compared to forward markets.

How are Forex Trades Quoted?

Because you're trading currencies from one country for another, forex quotes are always in pairs.

1. Base currency is the first currency listed
2. Base currency always has a value of 1

THE BID AND THE ASK

Just like other markets, forex quotes consist of two sides, the bid and the ask:

The BID is the price at which you can SELL base currency.
The ASK is the price at which you can BUY base currency.

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IMPORTANT TIPS

USD goes up when the quote is in USD and the other currency goes down when USD is the base currency.

The British pound (GBP), the Australian dollar (AUD) and the Euro (EUR) are the three exceptions to this rule.

In these pairs, where USD is not the base currency, a rising quote means the US dollar is weakening and buying less of the other currency.

If a currency quote goes up, the base currency is getting stronger. Lower quotes indicate a weakening base currency.

Cross currencies
It is called cross currencies when there is no USD involved, but the principle is the same.

What Causes the Market to Move?

These are the basic reasons for market movement. Current events change every second, and any piece of news could affect the forex market. Other times, you might assume that the forex market will shift, but it doesn't. Look for these signals that indicate the forex market is likely to move instead of assuming that it will or won't.

CENTRAL BANK MEETINGS (Rate Decisions)

The most important news on the forex market. In order to conduct monetary policy, central banks set the base interest rate. This rate dictates the interest for lending the money between the institutions, thereby controlling the flow of money in the economy.

The central bank board votes on the rate policy several times a year. Rates can be raised, lowered, or kept the same. As a result of the Federal Reserve Bank cutting the rate to 0 and stimulating the economy by making financing cheaper, the U.S. rate has reached its lowest point in history.

Other key decision-makers include the European Central Bank (ECB), Bank of England (BoE), Reserve Bank of Australia (RBA) and Bank of Japan (BoJ).

INFLATION (Gain or Loss of Buying Power)

Inflation is measured by the change in the price of a standardized basket of goods and services. Consumer price index (CPI) is the name given to this index. The central banks monitor inflation for guidance on how to change interest rates, which is another tool for controlling monetary policy. Even though the data is released monthly, it is often compiled into quarterly and annual reports, and is often referred to as year-over-year.

Despite its shortcomings, the CPI has two biases. First, consumers tend to switch purchases according to the demand elasticity, resulting in a substitution bias. There is also a quality / new good bias, as the basket tracks prices but does not take into account quality improvements. A good example of this can be seen in some of the fast-developing tech products, like mobile phones.

EMPLOYMENT DATA (Consumer Confidence)

Data on unemployment is crucial for assessing the economy's overall health. While all countries release this data periodically, the US Bureau of Labor Statistics releases its non-farm payroll report on the first Friday of every month. It shows the change in employment without taking the seasonal agricultural employment into account.

As the worldwide market digests the news, US dollar crosses tend to experience wild swings during this event. Price movements of over 1% are not uncommon.

RETAIL SALES (Consumer Spending)

Due to their monthly release, they are often used as leading indicators. Therefore, their impact on macroeconomic reports like quarterly GDP has yet to be seen.

Spending increases when consumers feel secure, which increases economic activity. The fact that productivity and wages are not growing while retail sales are rising could indicate that people are stockpiling for a slowdown. As a result, retail sales shouldn't be the only factor influencing sentiment.

ECONOMIC GROWTH (Investor Sentiment)

Every quarter, investors look for reports on the gross domestic product (GDP) to gauge how the economy is doing. Economic reports show the inflation-adjusted change in all goods and services produced.

Every quarter, investors look for reports on the gross domestic product (GDP) to gauge how the economy is doing. Economic reports show the inflation-adjusted change in all goods and services produced.

THE ADVANTAGES OF FOREX TRADING

There are no commissions or regulatory fees. With a small investment, anyone can trade forex.

A highly liquid market with a large number of participants. As a result, there are few opportunities for market manipulation or price anomalies.

In addition to being the largest market, it is also one of the most versatile. You can choose from a variety of trading pairs, trading styles, and analytical tools.

FORWARD FOREX MARKET

There is little transparency. Traders in the forex market are usually major institutions, so you're always up against professionals.

A high level of risk. In forex markets, leverage is much higher than in equities markets, so small fluctuations in currency rates can wipe out a leveraged speculator.

The portfolio should not be based on the advice of experts or portfolio advisers. Trading Forex requires a lot of learning by trading.

Forex Terms You Need to Know

BID

At what price the market maker/broker is willing to buy the currency pair. Bid prices are affected by the value of the underlying currency pair.

ASK

The price at which the market maker/broker is willing to sell a currency pair. The underlying currency pair's value is also taken into account.

QUOTE

As the denominator (bottom number) in a currency pair, the CAD is the quote when trading USD/CAD.

SPREAD

In the trading platform, traders can buy or sell (bid or ask) at different prices. The lower the spread offered by a CFD provider, the smaller the difference between the Buy and Sell price of the underlying FX pair. Spread can be used to measure market liquidity.

PIP

Currency pairs are generally priced in smaller increments. Forex pairs are measured by pip movements. Pips prices are subject to change based on the timing of the trade and the amount traded.

LEVERAGE

The ability to gain exposure to larger amounts of currency without having to pay the full value upfront. With less capital, you can trade larger amounts. With a leverage of 1:50, you can open a $10,000 trade with $200 in margin. You can amplify your profits with leverage, but you can also amplify your losses with it.

horizontal dark blue line

BASE

It is also known as the nominator (or top number) of a currency pair. As an example, when trading USD/CAD, the USD serves as the base currency.

horizontal dark blue line
Forex Trading Strategies

SCALPING

Scalping involves taking multiple small profits on short-term trading positions. Scalpers typically enter and exit trades within seconds or minutes, so they need ultra-fast reaction times. There may not be a suitable activity for everyone since this is very fast paced and rather stressful.

Price charts are also closely monitored by scalpers for patterns that can be used to predict exchange rate movements in the future. They typically analyze EUR/USD by using very short-term tick charts. Brokers with tight spreads, quick order executions, and minimal or no order slippage are generally the best brokers for scalpers.

NEWS TRADING

There are some forex traders with deep pockets who might use news trading strategies, but they are probably not suited for beginners. They generally benefit from the notable volatility that occurs immediately after key news releases in the forex market, which can be based on fundamental and technical analysis.

In order to keep up with key data releases, news traders typically monitor economic calendars. Before the event, they closely monitor the market to determine key support and resistance levels so that they can react quickly after the event. Trading news during fast markets requires traders to maintain strict discipline and place stop-loss and take-profit orders frequently.

TREND TRADING

In trend trading, you follow the market's prevailing trend or directional movement for a particular currency pair over the long term. Typically, this strategy involves buying on pullbacks in uptrends or selling on rallies in downtrends.

Trend traders generally hold onto their positions until the market reaches their objective or the trend reverses. In the event of a significant reversal, trend traders often use trailing stop loss orders to protect their profits.

Technical analysis indicators such as the Average Directional Movement Indicator (ADX) and/or moving averages allow trend traders to identify trends more accurately. To signal a potential reversal, they might also use both long- and short-term moving averages.

DAY TRADING

Another short-term trading strategy is day trading, which is practiced only during certain trading sessions. In general, day traders do not hold positions overnight, so they close out all trades each day. The trader is less exposed to market movements when they are not paying attention to the market.

Trading plans for day traders are usually based on technical analysis of short-term charts that show intraday price action. There are many day trading strategies, but breakout trading is a popular one. An increase in volume and a move beyond a given level on the chart trigger a trade and confirm it.

The 30-minute candlestick chart of GBP/USD shows a breakout below the lower converging trend line of a triangle pattern drawn in red. Trading volume also increased when the breakout occurred, confirming its validity.

SWING OR MOMENTUM TRADING

Swing trading, or momentum trading, is a medium-term trading strategy aimed at capturing more market movements. When the market corrects, swing traders trade both with and against major trends, so they should be prepared to hold overnight positions.

Swing traders tend to enter and exit positions based on momentum indicators that provide buy and sell signals. They are used by traders to identify overbought or oversold markets. On the charts of a currency pair, swing traders might also buy or sell ahead of support or resistance levels.

Momentum indicators include the Moving Average Convergence Divergence (MACD) histogram and the relative strength index (RSI).

Frequently Asked Questions

Forex trading on CFD (Contract for Difference) is a popular way to trade foreign currencies. It offers traders the opportunity to take advantage of price movements in global financial markets without having to own the underlying asset. CFD trading strategies for forex allow traders to benefit from both long and short positions and also gives them access to leverage, which can help increase their potential profits.

Trading forex has become a popular way for people to make money. With the right strategies and knowledge, it can be a great way to generate income. But before you start trading, it's important to understand the risks involved and learn the best strategies for success.

Forex trading can be a great way to make money, but it's important for beginners to understand the risks and rewards associated with this type of investment. While forex trading can be profitable, it also carries a high level of risk and requires a lot of research and experience. By learning about the basics of forex trading, as well as developing strategies tailored to your own goals and risk tolerance, you'll be able to make informed decisions when entering the market.

Forex trading has become an increasingly popular way to make money online. As a beginner, it can seem overwhelming trying to figure out where to start. But with the right guidance, you can learn how to trade forex and become successful in this lucrative market.

The first step is to develop a strategy that works for you. This will involve researching different currency pairs, understanding the markets, and setting up risk management techniques such as stop losses and take profits.

Finally, it's important to stay up-to-date on the latest news and trends in forex trading. This includes following industry experts on social media or subscribing to newsletters that provide forex trading tips and signals. With these resources at your disposal, you'll be well-equipped for forex trading.

The debate between Forex and crypto trading is one that has been ongoing for many years. Both have their own advantages and disadvantages, so it can be difficult to decide which is the better investment option.

Forex trading involves the buying and selling of foreign currencies with the aim of making a profit. It is a regulated market, with a wide range of instruments available for traders to use. On the other hand, cryptocurrency trading involves buying and selling digital assets such as Bitcoin or Ethereum, which are not regulated by any central authority.

When comparing Forex vs crypto trading, it is important to consider both the potential risks and rewards associated with each option. While Forex may offer more stability due to its regulation, cryptocurrencies can offer higher returns due to their volatility. Ultimately, it will depend on individual preferences when deciding which form of investment is better for them.

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