www.investopedia.com Open in urlscan Pro
151.101.130.137  Public Scan

Form analysis
2 forms found in the DOM

GET /search

<form class="general-search__form" role="search" action="/search" method="get">
  <div class="general-search__input-group input-group">
    <label for="general-search__search-input" class="is-vishidden">Search</label>
    <input type="text" name="q" id="general-search__search-input" class="general-search__input" placeholder="What are you looking for?" required="required" value="" autocomplete="off">
    <button class="general-search__button button--contained-standard-square">
      <span class="is-vishidden">Search</span>
      <svg class="icon icon-search ">
        <use xmlns:xlink="http://www.w3.org/1999/xlink" href="#icon-search"></use>
      </svg>
    </button>
    <button class="general-search__close" aria-label="Close search bar">
      <svg class="icon icon-close ">
        <use xmlns:xlink="http://www.w3.org/1999/xlink" href="#icon-close"></use>
      </svg>
    </button>
  </div>
</form>

GET /search

<form class="fullscreen-nav__search__form" role="search" action="/search" method="get">
  <div class="general-search__input-group input-group">
    <label for="fullscreen-nav__search__search-input" class="is-vishidden">Search</label>
    <input type="text" name="q" id="fullscreen-nav__search__search-input" class="general-search__input" placeholder="What are you looking for?" required="required" value="" autocomplete="off">
    <button class="general-search__button button--contained-standard-square">
      <span class="is-vishidden">Search</span>
      <svg class="icon icon-search ">
        <use xmlns:xlink="http://www.w3.org/1999/xlink" href="#icon-search"></use>
      </svg>
    </button>
  </div>
</form>

Text Content

Skip to content
 * Investing
   * Stocks
   * Cryptocurrency
   * Bonds
   * ETFs
   * Options and Derivatives
   * Commodities
   * Trading
   * Automated Investing
   * Brokers
   * Fundamental Analysis
   * Markets
   * View All
 * Simulator
   * Login / Portfolio
   * Trade
   * Research
   * My Games
   * Leaderboard
 * Banking
   * Savings Accounts
   * Certificates of Deposit (CDs)
   * Money Market Accounts
   * Checking Accounts
   * View All
 * Personal Finance
   * Budgeting and Saving
   * Personal Loans
   * Insurance
   * Mortgages
   * Credit and Debt
   * Student Loans
   * Taxes
   * Credit Cards
   * Financial Literacy
   * Retirement
   * View All
 * Economy
   * Government and Policy
   * Monetary Policy
   * Fiscal Policy
   * Economics
   * View All
 * News
   * Markets
   * Companies
   * Earnings
   * CD Rates
   * Mortgage Rates
   * Economy
   * Government
   * Crypto
   * ETFs
   * Personal Finance
   * View All
 * Reviews
   * Best Online Brokers
   * Best Savings Rates
   * Best CD Rates
   * Best Life Insurance
   * Best Personal Loans
   * Best Mortgage Rates
   * Best Money Market Accounts
   * Best Auto Loan Rates
   * Best Credit Repair Companies
   * Best Credit Cards
   * View All

Trade
 * Search Search
   Please fill out this field.

Search Search
Please fill out this field.
 * Investing
   Investing
    * Stocks
    * Cryptocurrency
    * Bonds
    * ETFs
    * Options and Derivatives
    * Commodities
    * Trading
    * Automated Investing
    * Brokers
    * Fundamental Analysis
    * Markets
    * View All

 * Simulator
   Simulator
    * Login / Portfolio
    * Trade
    * Research
    * My Games
    * Leaderboard

 * Banking
   Banking
    * Savings Accounts
    * Certificates of Deposit (CDs)
    * Money Market Accounts
    * Checking Accounts
    * View All

 * Personal Finance
   Personal Finance
    * Budgeting and Saving
    * Personal Loans
    * Insurance
    * Mortgages
    * Credit and Debt
    * Student Loans
    * Taxes
    * Credit Cards
    * Financial Literacy
    * Retirement
    * View All

 * Economy
   Economy
    * Government and Policy
    * Monetary Policy
    * Fiscal Policy
    * Economics
    * View All

 * News
   News
    * Markets
    * Companies
    * Earnings
    * CD Rates
    * Mortgage Rates
    * Economy
    * Government
    * Crypto
    * ETFs
    * Personal Finance
    * View All

 * Reviews
   Reviews
    * Best Online Brokers
    * Best Savings Rates
    * Best CD Rates
    * Best Life Insurance
    * Best Personal Loans
    * Best Mortgage Rates
    * Best Money Market Accounts
    * Best Auto Loan Rates
    * Best Credit Repair Companies
    * Best Credit Cards
    * View All

 * Financial Terms
 * Newsletter
 * About Us


Follow Us
 * 
 * 
 * 
 * 
 * 
 * 



Table of Contents
Expand
Table of Contents
 * What Is the Forex Market?
 * How It Works
 * Where Is It?
 * Who Trades on It?
 * What Is Forex Trading?
 * How to Start Trading Forex
 * Types of Markets
 * Using the Forex Markets
 * Forex for Hedging
 * Forex for Speculation
 * Basic Forex Trading Strategies
 * Pros and Cons of Trading Forex
 * Pros Explained
 * Cons Explained
 * Forex Terminology
 * Charts Used in Forex Trading
 * Forex: Trading vs. Investing
 * Forex Scams, Frauds, and Hucksters
 * Tips on Avoiding Forex Scams
 * FAQs
 * Is Trading Forex Legal in the US?
 * The Bottom Line

 * Guide to Forex Trading
 * Strategy & Education


HOW TO START FOREX TRADING: A BEGINNER’S GUIDE


By
James Chen

Full Bio
 * 
 * 

James Chen, CMT is an expert trader, investment adviser, and global market
strategist.

Learn about our editorial policies
Updated August 29, 2024
Reviewed by
Gordon Scott
Reviewed by Gordon Scott
Full Bio
 * 
 * 

Gordon Scott has been an active investor and technical analyst or 20+ years. He
is a Chartered Market Technician (CMT).

Learn about our Financial Review Board
Fact checked by
Michael Rosenston
Fact checked by Michael Rosenston
Full Bio
 * 

Michael Rosenston is a fact-checker and researcher with expertise in business,
finance, and insurance.
Learn about our editorial policies
Part of the Series
Forex Trading Strategy & Education
Basic Forex Overview
 1. Forex (FX): How Trading in the Foreign Exchange Market Works
 2. Forex Trading: A Beginner's Guide
    CURRENT ARTICLE
 3. Getting Started in Forex
 4. Basics Of Currency Trading

Key Forex Concepts
 1. Currency Pairs
 2. Pips
 3. Interest Rates
 4. Central Banks
 5. Leveraged Trading
 6. Forex Trading Account

Currency Markets
 1. Spot Currencies
 2. Currency Forwards
 3. Currency Futures
 4. Currency Swaps
 5. 7 Currencies Worth More Than the U.S. Dollar

Beginner/Intermediate Forex Trading Strategies
 1. Forex Trading Strategy
 2. 9 Forex Trading Tips
 3. Strategies for Part-Time Forex Traders
 4. 3 Simple Strategies For Euro Traders

Advanced Forex Trading Strategies and Concepts
 1. Currency Carry Trades
 2. Interest Rate Parity
 3. Harmonic Patterns in FX
 4. Forex Algorithmic Trading

Foreign exchange (forex or FX) trading involves buying one currency and selling
another while attempting to profit from the trade. According to the latest
reliable data, global daily trading in 2022 was $7.5 trillion, making forex the
largest financial market in the world, dwarfing even the global stock market.1
Trading currencies online has become far more accessible in the last decade,
attracting droves of newer traders wanting a piece of the action.



In forex markets, currencies trade against each other as exchange rate pairs.
For example, the EUR/USD would be a currency pair for trading the euro against
the U.S. dollar. This is straightforward, but the market lingo comes fast at
beginners and can quickly become overwhelming. Assets traded in FX include
currencies, contracts for difference (CFDs), indexes, commodities, spreads, and
cryptocurrencies. There are also forex spot and derivatives markets for
forwards, futures, options, and currency swaps, all to speculate or hedge on
forex prices. If all this weren't enough, jargon like "pips," "lots," and
"leverage" mean that, without a good introduction, newer traders can quickly
feel they are in over their heads.



That's why we've put together this detailed guide to help you start trading
foreign currencies the right way. We'll break down the essential concepts and
guide you through the most critical steps, from choosing a broker and placing
your first trade to developing a solid strategy and, most importantly, managing
your risk.2




KEY TAKEAWAYS

 * The foreign exchange (forex or FX) market is a global marketplace for
   exchanging national currencies.
 * Because of the worldwide reach of trade, commerce, and finance, forex is the
   world's largest and most liquid asset market.
 * Currencies trade against each other as exchange rate pairs. For example,
   EUR/USD is a currency pair for trading the euro against the U.S. dollar.
 * Forex markets exist as spot (cash) and derivatives markets, offering
   forwards, futures, options, and currency swaps.
 * Market participants may use forex to hedge against international currency and
   interest rate risk, speculate on geopolitical events, and diversify
   portfolios, among other reasons.


WHAT IS THE FOREX MARKET?

The foreign exchange market is where currencies are traded. Its most striking
aspect is how it has no central marketplace. Instead, currency trading is done
electronically over the counter (OTC). All transactions occur via computer
networks that connect traders worldwide.



The main markets are open 24 hours a day, five days a week (from Sunday, 5 p.m.
ET until Friday, 4 p.m. ET). Currencies are traded worldwide, but a lot of the
action happens in the major financial centers. A 24-hour trading day begins in
the Asia-Pacific region, starting with Sydney, followed by Tokyo, Hong Kong, and
Singapore. It then continues through Europe, including Paris, Frankfurt, Zurich,
and London, before moving on to North America and ending with the U.S. trading
session. The forex market is highly dynamic at all times, with price quotes
changing constantly.

Take the Next Step to Invest
Advertiser Disclosure
×
The offers that appear in this table are from partnerships from which
Investopedia receives compensation. This compensation may impact how and where
listings appear. Investopedia does not include all offers available in the
marketplace.


You’ll often see the terms FX, forex, foreign exchange market, and currency
market. These terms are synonymous, and all refer to the forex market.


HOW DOES THE FOREX MARKET WORK?

The FX market is one of the two truly continuous, 24-hours-a-day (during
weekdays) trading markets, the other being cryptocurrencies (although crypto
markets don’t pause even on weekends). Traditionally, the forex market was
dominated by institutional firms and large banks, but its popularity among
retail traders has significantly grown over the past decade. There's a caveat:
Newer traders in the market have lured in fraudsters looking to take advantage
of less knowledgeable investors.




WHERE IS IT?

An interesting aspect of world forex markets is that no physical buildings serve
as trading venues. Instead, markets operate via a series of connected trading
terminals and computer networks. Market participants are institutions,
investment banks, commercial banks, and retail investors worldwide.




WHO TRADES ON IT?

Currency trading used to be complicated for individual investors until it made
its way onto the internet. Previously, most currency traders were large
multinational corporations, hedge funds, or high-net-worth individuals. While
commercial and investment banks still conduct most of the trading in forex
markets, there are also prospects for professional and individual investors to
trade one currency against another.






WHAT IS FOREX TRADING?

At its core, forex trading is about capturing the changing values of pairs of
currencies. For example, if you think the euro will increase in value against
the U.S. dollar, you may buy euros with dollars. If the euro's value rises on a
relative basis (the EUR/USD rate), you can sell your euros back for more dollars
than you initially spent, thus making a profit.



In addition to speculative trading, forex trading is also used for hedging
purposes. Individuals and businesses use forex trading to protect themselves
from unfavorable currency movements. For example, a company doing business in
another country might use forex trading to insure against potential losses
caused by fluctuations in the exchange rate.



By securing a favorable rate in advance through forex trades, a firm can reduce
financial uncertainty and ensure more stable costs in its domestic currency.
Hedging FX risks is an essential part of international business today.



Forex trading has high liquidity, meaning it's easy to buy and sell many
currencies without significantly changing their value. In addition, traders can
use leverage to amplify the power of their trades, controlling a significant
position with a relatively small amount of money. However, leverage can also
amplify losses, making forex trading a field that requires knowledge, strategy,
and an awareness of the risks involved.



Forex trading is also quintessentially global, encompassing financial centers
worldwide. This means that currency values are influenced by a variety of
international events. Economic indicators such as interest rates, inflation,
geopolitical stability, and economic growth can significantly impact currency
prices. For instance, if a country's central bank raises its interest rates, its
currency might rise in value due to the higher returns on investments made in
that currency.



Similarly, political uncertainty or a poor economic growth outlook can
depreciate a currency. These interlocking exchange relations—some currencies
growing stronger, others not—means forex trading reflects worldwide economic and
political developments.






HOW TO START TRADING FOREX

Here's a to-do list to get you started.


 1. Learn about forex: You now have the basic concepts, but you'll need to
    understand more of the terminology and how the forex market operates. This
    includes learning currency pairs, market patterns, and the factors
    influencing currency prices.
 2. Develop a trading strategy: Learn the different trading strategies, such as
    various technical analysis strategies, fundamental analysis, and news
    trading. Choose a strategy that aligns with your trading style and risk
    tolerance. For more, see Forex Trading Strategy and Education.
 3. Develop a plan: Create a trading plan that includes your goals, risk
    tolerance, strategies, and the criteria you'll use to assess trades. The
    most crucial part is not just making a plan but sticking to it in the heat
    of trading when emotions run high. Successful traders are disciplined
    traders.
 4. Set up a brokerage account: Select a broker regulated by a reputable
    financial authority, such as the Commodities Futures Trading Commission
    (CFTC) in the U.S. Ensure the broker offers a user-friendly trading
    platform, good customer support, and low fees. For ideas, see Best Forex
    Brokers.
    
 5. Practice with a demo account: Many forex platforms provide the ability to
    paper trade before you put skin in the game. This is a time to ensure you've
    locked down all the mechanics of trading and tested your strategies. It's
    better to identify your mistakes and weaknesses in practice mode than when
    your money is on the line.
 6. Start slowly: Once you feel confident with your practice trading, start
    trading with real money. Start off small to manage risk and gradually
    increase your trading size as you gain experience.
 7. Stay on top of your holdings: Regularly check your positions and ensure you
    have enough funds in your account. Use stop-loss and take-profit orders to
    manage risk and protect your profits.
 8. Monitor and adapt: Keep up with market news, economic indicators, and
    geopolitical events likely to affect currency prices. Be prepared to adjust
    your strategies as market conditions change, which is not the same as
    adapting your strategy with every price move.




TYPES OF MARKETS

Forex is traded primarily via spot, forwards, and futures markets. The spot
market is the largest of all three markets because it is the underlying asset
(the money) on which forwards and futures markets are based. When people talk
about the forex market, they are usually referring to the spot market.



The forwards and futures markets are more likely to be used by companies or
financial firms that need to hedge their foreign exchange risks.




SPOT MARKET

In the spot market, currencies are bought and sold based on their trading price.
Prices are determined by supply and demand and reactions to factors such as:


 * Interest rates
 * Economic performance
 * Geopolitical events
 * Price speculation



A finished deal on the spot market is known as a spot deal. It's a bilateral
transaction in which one party delivers one currency amount to the counterparty
and receives a specified amount of another currency at the agreed-upon exchange
rate value. After a position is closed, it's settled in cash. Trades take two
days to settle.




FORWARDS AND FUTURES MARKETS

A forward contract is a private agreement to buy a currency at a future date and
a predetermined price. Forwards are traded on the OTC markets. Futures contracts
are based on the same principle but are standardized. Futures trade on
exchanges, not OTC.



In the futures market, futures contracts are bought and sold based on a standard
size and settlement date on public commodities markets, such as the Chicago
Mercantile Exchange (CME). Futures contracts have specific details, including
the number of units being traded, delivery and settlement dates, and minimum
price increments that can't be customized. The exchange acts as a counterparty
to the trader, providing clearance and settlement services.



Both types of contracts are binding and are typically settled in cash at expiry,
although contracts can also be bought and sold before they expire. These
instruments can offer protection against risk when trading.



In addition to forwards and futures, options contracts are traded on specific
currency pairs. Forex options give holders the right, but not the obligation, to
buy or sell a currency pair at a specified price on a specified future date.



Unlike the spot, forwards, and futures markets, the options market doesn't
involve an obligation to purchase the currency. Options contracts give you the
right to buy or sell the currency, but it's a choice.


USING THE FOREX MARKETS

There are two features of currencies as an asset class.


 * You can earn the interest rate differential between two currencies: When you
   hold a currency pair position overnight, you'll either receive or pay
   interest based on the interest rate differential. You'll earn interest if the
   currency you bought has a higher interest rate than the currency you sold.
   This strategy is sometimes called a carry trade.
 * You can profit from changes in the exchange rate: In forex trading, you can
   profit by buying a currency pair when you anticipate the exchange rate will
   rise and selling it when you expect the exchange rate to fall. The difference
   between your entry and exit prices determines your profit or loss.




FOREX FOR HEDGING

Companies doing business in foreign countries face currency risks due to
fluctuations in currency values when they buy or sell goods and services outside
their domestic market. Foreign exchange markets provide a way to hedge currency
risk by fixing a rate at which the transaction will be completed. A trader can
buy or sell currencies in the forward or swap markets in advance, and lock in a
specific exchange rate.



Locking in an exchange rate helps firms plan ahead, reduce losses, or even
increase gains, depending on which currency in a pair is strengthened or
weakened.




TYPES OF FOREX ACCOUNTS

There are four types of forex lots: nano lots are 100 currency units, micro lots
are 1,000 units, mini lots are 10,000 units of currency, and standard forex lots
are 100,000 units of currency.3


FOREX FOR SPECULATION

Interest rates, trade, political stability, economic strength, and geopolitical
risk all affect the supply and demand dynamics for currencies. This creates
prospects to profit from any situation that may increase or reduce one
currency’s value relative to another.



A forecast that one currency will weaken is essentially the same as assuming
that the other currency in the pair will strengthen. So, a trader anticipating a
currency change could short or long one of the currencies in a pair and take
advantage of the shift.




BASIC FOREX TRADING STRATEGIES

The most basic trades are long and short trades, with the price changes measured
in pips, points, and ticks. In a long trade, the trader bets that the currency
price will increase and expects to sell their position at a higher price. A
short trade, conversely, is a bet that the currency pair’s price will decrease.
Traders can also use trading strategies based on technical analysis, such as
breakouts and moving averages (MA), to fine-tune their approach to trading.



Depending on the duration and numbers for trading, we can set out four types of
trading strategies:


 * A scalp trade involves positions held for seconds or minutes at most, and
   profits are generally limited to pips.
 * Day trades are short-term trades in which positions are held and liquidated
   on the same day. The duration of a day trade can be hours or minutes.
 * In a swing trade, the trader holds the position for longer than a day, like
   days or weeks.
 * In a position trade, the trader holds the currency for a long period,
   sometimes months or even years.




PROS AND CONS OF TRADING FOREX

Pros

 * Largest market in terms of daily trading volume in the world
   

 * Traded 24 hours a day, five days a week
   

 * Starting capital can rapidly multiply
   

 * Generally follows the same rules as regular trading
   

 * More decentralized than stock or bond markets

Cons

 * Leverage can amplify loses
   

 * Leverage in the range of 50:1 or higher is not uncommon

 * Requires an understanding of economic fundamentals, macro factors, and
   indicators

 * Less regulated than other markets

 * No income-generating instruments




PROS EXPLAINED

 * Largest market in terms of daily trading volume in the world: Forex markets
   have the largest daily trading volume globally and, thus, the most
   liquidity.4 This makes it easy to enter and exit a position in any major
   currency within a fraction of a second for a small spread in most market
   conditions.
 * Traded 24 hours a day, five days a week: The forex market starts trading each
   day in Australia and ends in New York. The major forex market centers are
   Frankfurt, Hong Kong, London, New York, Paris, Singapore, Sydney, Tokyo, and
   Zurich.
 * Starting capital can rapidly multiply: This is due to the leverage available
   in forex trading.
 * Generally follows the same rules as regular trading: Forex rules are similar
   to other trading, and forex requires much less initial capital than other
   forms of trading.
 * More decentralized than traditional stock or bond markets: No centralized
   exchange dominates currency trade operations, and the potential for
   manipulation—through insider information about a company or stock—is lower.




CONS EXPLAINED

 * Leverage can amplify losses: Leveraged trading amplifies losses in forex
   trading just as it amplifies gains. Banks, brokers, and dealers in the forex
   markets allow a high amount of leverage, meaning traders can control large
   positions with relatively little money, increasing the risk of catastrophic
   losses.
 * Leverage in the range of 50:1 or higher is not uncommon: Even greater amounts
   of leverage are available from certain brokers. Still, leverage must be used
   cautiously because many inexperienced traders suffer significant losses using
   more leverage than necessary or prudent.
 * Requires an understanding of economic fundamentals, macro factors, and
   indicators: A currency trader needs a big-picture understanding of the
   economies of various countries and their connections to grasp what drives
   currency values and trade currencies productively.
 * Less regulated than other markets: Forex markets are decentralized. The
   extent and nature of regulation in forex markets depend on the trading
   jurisdiction.
 * No income-generating instruments: Forex markets lack instruments that provide
   regular income, such as regular dividend payments.




FOREX TERMINOLOGY

The best way to get started in forex is to learn its language. Here are a few
terms to get you started:



Forex Terms Cheat Sheet Term Definition Example Ask The lowest price at which
someone is willing to sell a currency If the EUR/USD ask is 1.2345, it's the
lowest price someone will sell you one euro for. Base Currency The first or
left-side currency listed in a currency pair In EUR/USD, the euro is the base
currency. Bid The highest price at which someone is willing to buy a currency If
the EUR/USD bid is 1.2345, it's the highest price someone will pay you for one
euro. Bid/Ask Spread The difference between the buying (bid) and selling (ask)
price of a currency pair If the EUR/USD bid is 1.2345 and the ask is 1.2348, the
spread is 3 pips. Contract for Difference (CFD) A derivative that lets traders
speculate on price movements without owning the underlying asset Trading EUR/USD
CFDs means betting on price changes, not owning euros or dollars. Currency Pair
A quote for two different currencies, with the value of one expressed in
relation to the other EUR/USD, GBP/JPY, USD/CHF, etc. Leverage Using borrowed
capital to increase potential returns (and risks) Trading with 100:1 leverage
means controlling $10,000 with only $100 of your own money (the rest is
borrowed). Long Buying a currency pair with the expectation it will increase in
value Going long on EUR/USD means you expect the euro to strengthen against the
dollar. Lot A standardized unit of currency traded in forex A standard lot =
100,000 units, a mini lot = 10,000 units, a micro lot = 1,000 units, and a nano
lot = 100 units Margin The amount of money required to hold a leveraged position
Your broker may require a 5% margin, meaning you have to pay 5% of the total
position value in your account. Pip The smallest standard unit of price movement
in a currency pair, typically the last decimal place A pip in EUR/USD is 0.0001.
Quote Currency The second currency in a currency pair In EUR/USD, the U.S.
dollar is the quote currency. Short Selling a currency pair with the expectation
it will decline in value Going short on GBP/JPY means you expect the pound to
weaken against the yen.




CHARTS USED IN FOREX TRADING

Three types of charts are used in forex trading.




LINE CHARTS

Line charts are used to identify big-picture trends for a currency. They are the
most basic and common type of chart used by forex traders. They display the
closing price for a currency for the periods the user specifies. The trend lines
identified in a line chart can be used as part of your trading strategy. For
example, you can use the information in a trend line to identify breakouts or a
trend reversal.



Remember that the trading limit for each lot includes margin money used for
leverage. This means the broker can provide you with capital at a predetermined
ratio. For example, they may put up $50 for every $1 you put up for trading,
meaning you will only need to use $10 from your funds to trade $500 in currency.


BAR CHARTS

Bar charts provide more price information than line charts. Each bar on a bar
chart represents the trading activity for a chosen time frame, such as a day,
hour, minute, or any other period the user selects. Each bar contains the
trade's opening, highest, lowest, and closing prices. A dash on the left of the
bar represents the period’s opening price, and a similar dash on the right
represents the closing price. Colors are sometimes used to indicate price
movement, with green or white for rising prices and red or black for declining
prices.



Bar charts for currency trading may help traders identify whether it is a
buyer’s or seller’s market.




CANDLESTICK CHARTS

Japanese rice traders first used candlestick charts in the 18th century.5 They
are visually more appealing and easier to read than the charts above. The upper
portion of a candle is used for the opening price and highest price point of a
currency, while the lower portion indicates the closing price and lowest price
point. A down candle represents a period of declining prices and is shaded red
or black, while an up candle is a period of increasing prices and is shaded
green or white.



The formations and shapes in candlestick charts are used to identify market
direction and movement. Some of the best-known are the hanging man and shooting
star.6





FOREX: TRADING VS. INVESTING

Investing and trading are two distinct approaches to participating in financial
markets, each with different goals and strategies. Investing typically involves
a long-term approach, where the goal is gradually building wealth over time.
Investors may hold assets for months, years, or even decades, aiming to benefit
from the appreciation of the asset's value or regular income through dividends
or interest payments.



Meanwhile, trading involves a shorter-term approach, seeking to profit from the
frequent buying and selling of assets. Traders seek to capitalize on short-term
price trends and may hold positions for a few seconds (scalping), minutes, hours
(day trading), or days to weeks (swing trading). They often rely on technical
analysis, studying charts and patterns to identify trading prospects.



Forex trading is far more common due to the market's high degree of leverage,
liquidity, and 24-hour accessibility. Forex traders typically use shorter-term
strategies to capitalize on frequent price fluctuations in currency pairs.




FOREX SCAMS, FRAUDS, AND HUCKSTERS

Forex trading scams are fraudulent schemes that prey on unsuspecting traders and
investors in the $7.5 trillion-per-day foreign exchange market.4 Charlatans
exploit the market's complexity, high stakes, and lack of centralized regulation
to deceive victims, often with false promises of easy profits and low risk.



Over the years, common scams have included Ponzi schemes that misused investor
funds and scams peddling worthless trading advice. The forex scandal of 2013, in
which traders at some of the world's largest banks colluded to manipulate
exchange rates, highlighted the potential for large-scale fraud even among
established financial institutions. The scandal led regulators to ramp up
scrutiny in the area.7 However, given the many scams since, vigilance is
undoubtedly called for.



Here are some of the best-known recent forex cons.



Notable Scams in Forex Trading Scandal Year Description Key Players Forex
Scandal (Forex Probe) 2007-2013 Years-long collusion between major banks to
manipulate exchange rates on the forex market Barclays PLC (BCS), JPMorgan &
Chase & Co. (JPM), UBS Group AG (UBS), Citi Group (C), and others Black Diamond
Ponzi Scheme 2007-2010 A Ponzi scheme promising high returns from forex trading,
which never materialized American (fake) hedge fund managers IB Capital FX Scam
2012 A forex scam that solicited funds from at least 960 customers without
proper registration Unlicensed forex traders FXCM 2009-2014 The company colluded
with market makers and was secretly involved in betting against its clients'
trades FXCM, now owned by Jefferies Financial Group Inc. (JEF)—continues to
operate globally, but is banned from accepting U.S. clients Israeli/German Forex
Scam 2023 Suspects allegedly posed as financial traders dealing in
cryptocurrencies and forex, targeting individuals worldwide through call centers
in Bulgaria, Serbia, Ukraine, Georgia, Kosovo, and Israel German nationals and
Israeli crime syndicates



These are just a few of the frauds in this area of finance. Here are common
types of scams:


 * Signal seller scams: Fraudsters sell trading signals or advice, often with
   false promises of guaranteed profits.
 * High-yield investment programs: Scammers lure in investors with promises of
   high returns from nonexistent or worthless investments.
 * Fake brokers: Unregistered or offshore brokers manipulate trading conditions,
   refuse withdrawals, or disappear with investors' funds.
 * Automated trading systems: These scams involve selling "forex robots" that
   the cons claim can trade profitably on behalf of the user but often result in
   losses instead.



Social media and messaging apps have played a notable role in these scams.
Fraudsters often use these channels to build a trustworthy relationship with an
audience before promoting questionable trading schemes.




TIPS ON AVOIDING FOREX SCAMS

Experts emphasize the importance of education and due diligence in mitigating
the risk of falling victim to scams. Here are some tips:


 * Verify broker credentials: Ensure that a broker you're considering working
   with is registered with reputable regulatory bodies like the Commodity
   Futures Trading Commission (CFTC) or Financial Conduct Authority (FCA). Check
   its regulatory status and history of compliance. There are just six
   CFTC-registered forex dealers in the U.S. Avoid trading with any others.
 * Charles Schwab Futures and Forex LLC
 * Gain Capital Group LLC (Forex.com)
 * tastyfx LLC
 * Interactive Brokers LLC
 * Oanda Corporation (Oanda, FXTrade.com)
 * Trading.com Markets Inc. (Trading.com)
   
 * Be skeptical of high returns: Avoid investment prospects that promise high
   returns with little or no risk. Legitimate investments always have risk, and
   the best forex brokers emphasize the risks to ensure you understand what
   you're getting into.
 * Do your research: Investigate the company, its management team, and its track
   record. Look for reviews and testimonials from credible sources. Be aware of
   common scam tactics, like fake accounts, impersonations, and misleading
   marketing materials, and choose brokers with transparent fee structures,
   clearly defined trading conditions, and accessible customer support.
 * Use security tools: Employ VPNs, password managers, and antivirus software to
   protect your trading accounts and personal information.



Forex fraud will likely become more innovative as markets evolve and
sophisticated technology enables even more advanced scam schemes. But with
vigilance and prudence forex trading can be navigated more securely.




FREQUENTLY ASKED QUESTIONS (FAQS)


IS TRADING FOREX LEGAL IN THE US?

Yes, forex trading is legal in the U.S., but it is regulated to better protect
traders and make sure that brokers comply with financial standards.




HOW MUCH MONEY DO I NEED TO START TRADING FOREX?

You can start trading forex with as little as $100 to $500 funded in a mini
account, but will need significantly more capital for a standard account.
Leverage from brokers can allow you to trade much larger amounts than your
account balance. Brokers may provide capital at a predetermined ratio, such as
putting up $50 for every $1 you put up for trading. This means you may only need
to use $10 of your own funds to trade $500 in currency.

The specific minimum deposit will depend on the brokerage you use and the amount
of leverage it allows.




ARE FOREX MARKETS VOLATILE?

Forex markets are among the most liquid markets in the world. The volatility of
a particular currency is a function of multiple factors, such as the politics
and economics of its country of issue. Unexpected events like a payment default
or an imbalance in trading relationships with another currency can result in
significant volatility.




ARE FOREX MARKETS REGULATED?

Forex trade regulations vary by jurisdiction. Countries like the United States
have sophisticated infrastructure and robust regulation of forex markets by
organizations such as the National Futures Association and the CFTC. Developing
countries like India and China have restrictions on the firms and capital to be
used in forex trading. Europe as a whole is the largest forex market in the
world, but regulations still vary among different member states. In the U.K.,
the Financial Conduct Authority monitors and regulates forex trades.




WHICH CURRENCIES CAN I TRADE IN?

Currencies with high liquidity have a ready market and tend to exhibit a more
smooth and predictable price action in response to external events. The U.S.
dollar is the most traded currency in the world.8 It is paired up in nine of the
world's 10 most traded currency pairs.9 Currencies with low liquidity, however,
cannot be traded in large lot sizes without causing a market movement.




THE BOTTOM LINE

Forex trading offers the potential for significant profits but also carries
substantial risks. The foreign exchange market's vast size, liquidity, and 24/5
accessibility make it attractive to traders worldwide. However, the inherent
volatility, leverage, and complexity of forex trading can quickly lead to
significant losses, especially for inexperienced traders.



To succeed in forex trading, you must develop a deep knowledge of the markets,
economic fundamentals, and technical analysis. Managing risk is essential,
including proper position sizing and stopping losses. Traders should also remain
vigilant against the many frauds that pervade the forex market.



Aspiring forex traders should start with a solid education, practice with demo
accounts, and only risk capital they can afford to lose. Partnering with a
reputable, well-regulated broker and maintaining realistic expectations are also
crucial.



Article Sources

Investopedia requires writers to use primary sources to support their work.
These include white papers, government data, original reporting, and interviews
with industry experts. We also reference original research from other reputable
publishers where appropriate. You can learn more about the standards we follow
in producing accurate, unbiased content in our editorial policy.

 1. Bank for International Settlements. “OTC Foreign Exchange Turnover in April
    2022.” Page 1.

 2. BIS. "Triennial Central Bank Survey, 2022."

 3. Babypips. "What Is a Lot in Forex?"

 4. Reuters. "Global FX Trading Hits Record $7.5 Trln a Day – Bis Survey."

 5. FTMO. "Technical Analysis – History of Candlestick Charts."

 6. AIB Bank. "Spot Foreign Exchange."

 7. Reuters. "Global Banks Admit Guilt in Forex Probe, Fined Nearly $6 Billion."

 8. Tastyfx. "What Are the Top 10 Most Traded Currencies in the World?"

 9. Tastyfx. "Top 10 Most Traded Currency Pairs."

Compare Accounts
Advertiser Disclosure
×
The offers that appear in this table are from partnerships from which
Investopedia receives compensation. This compensation may impact how and where
listings appear. Investopedia does not include all offers available in the
marketplace.
Provider
Name
Description



Part of the Series
Forex Trading Strategy & Education
Basic Forex Overview
 1. Forex (FX): How Trading in the Foreign Exchange Market Works
 2. Forex Trading: A Beginner's Guide
    CURRENT ARTICLE
 3. Getting Started in Forex
 4. Basics Of Currency Trading

Key Forex Concepts
 1. Currency Pairs
 2. Pips
 3. Interest Rates
 4. Central Banks
 5. Leveraged Trading
 6. Forex Trading Account

Currency Markets
 1. Spot Currencies
 2. Currency Forwards
 3. Currency Futures
 4. Currency Swaps
 5. 7 Currencies Worth More Than the U.S. Dollar

Beginner/Intermediate Forex Trading Strategies
 1. Forex Trading Strategy
 2. 9 Forex Trading Tips
 3. Strategies for Part-Time Forex Traders
 4. 3 Simple Strategies For Euro Traders

Advanced Forex Trading Strategies and Concepts
 1. Currency Carry Trades
 2. Interest Rate Parity
 3. Harmonic Patterns in FX
 4. Forex Algorithmic Trading


Related Articles

How Currency Trading Works



Forex Basics: Setting Up an Account



What Are Pips in Forex Trading, and What Is Their Value?



What Is a Currency Forward?



Spot Exchange Rate: Definition, How It Works, and How to Trade



How Much Leverage Is Right for You in Forex Trades

Partner Links





Related Terms
What Are Pips in Forex Trading, and What Is Their Value?
A pip is the smallest price increment (fraction) tabulated by currency markets
to establish the price of a currency pair.
more
What Is a Currency Forward?
A currency forward is a customizable derivative product and hedging tool that
trades on the OTC market.
more
Spot Exchange Rate: Definition, How It Works, and How to Trade
A spot exchange rate is the rate for a foreign exchange transaction for
immediate delivery.
more
Forex (FX): How Trading in the Foreign Exchange Market Works
The foreign exchange, or Forex, is a decentralized marketplace for the trading
of the world's currencies.
more
Managed Forex Accounts: Meaning, Safety, FAQs
A managed forex account is a type of forex account in which a money manager
trades the account on a client's behalf for a fee.
more
Currency Appreciation: What It Is and How It Works
Currency appreciation is the increase in the value of one currency relative to
another in forex markets.
more
 * 
 * 
 * 
 * 
 * 

 * About Us
 * Terms of Service
 * Dictionary
 * Editorial Policy
 * Advertise
 * News
 * Privacy Policy
 * Contact Us
 * Careers
 * EU Privacy

 * #
 * A
 * B
 * C
 * D
 * E
 * F
 * G
 * H
 * I
 * J
 * K
 * L
 * M
 * N
 * O
 * P
 * Q
 * R
 * S
 * T
 * U
 * V
 * W
 * X
 * Y
 * Z

Investopedia is part of the Dotdash Meredith publishing family.


WE CARE ABOUT YOUR PRIVACY

We and our 100 partners store and/or access information on a device, such as
unique IDs in cookies to process personal data. You may accept or manage your
choices by clicking below, including your right to object where legitimate
interest is used, or at any time in the privacy policy page. These choices will
be signaled to our partners and will not affect browsing data.


WE AND OUR PARTNERS PROCESS DATA TO PROVIDE:

Store and/or access information on a device. Use limited data to select
advertising. Create profiles for personalised advertising. Use profiles to
select personalised advertising. Create profiles to personalise content. Use
profiles to select personalised content. Measure advertising performance.
Measure content performance. Understand audiences through statistics or
combinations of data from different sources. Develop and improve services. Use
limited data to select content. List of Partners (vendors)

Accept All Reject All Show Purposes