LESSON 1: WHAT IS FOREX AND WHY DO SO MANY PEOPLE TRADE IT?

Forex, short for Foreign Exchange, is the global currency exchange market where individuals, businesses, banks, and financial institutions buy one currency while simultaneously selling another. It is the largest financial market in the world, with daily trading volumes reaching trillions of U.S. dollars.

At its core, forex trading is about profiting from changes in value between two currencies.

If you believe one currency will increase in value relative to another, you buy (BUY) that currency pair with the intention of selling it later at a higher price. Conversely, if you expect a currency to decline in value, you can sell (SELL) the pair and profit as prices move downward.
This two-way trading mechanism—the ability to profit in both rising and falling markets—is one of the key reasons why forex attracts traders of all experience levels.

Forex is a zero-sum game: for every winner, there is a loser.
Successful traders focus on small but consistent and sustainable returns, rather than trying to get rich quickly.

How the Forex Market Works

Exchange rates between currencies are constantly changing due to a wide range of factors, including economic conditions, monetary policy, interest rates, inflation, market data, and global news. As a result, forex is a highly volatile market, creating numerous trading opportunities every day.

Unlike stock markets that operate on centralized exchanges, forex functions as a decentralized market (OTC – Over The Counter). There is no single exchange controlling all trades. Instead, the market operates through a global network of central banks, commercial banks, hedge funds, corporations, brokers, and millions of individual traders.

Thanks to this structure, the forex market is open 24 hours a day, five days a week, moving continuously through the Australian, Asian, European, and U.S. trading sessions. When one session closes, another opens—creating a market that never truly “sleeps.”

This flexibility, combined with high liquidity and relatively low barriers to entry, has made forex a popular starting point for many people who want to learn and participate in financial trading.

1. The Core Mechanism of the Forex Market

Trading in Currency Pairs

In forex, all trades occur in currency pairs, such as EUR/USD, USD/JPY, or GBP/USD.
The price of a pair shows how many units of the quote currency are required to exchange for one unit of the base currency.

• If you expect the base currency to strengthen relative to the quote currency, you BUY the pair.

• If you expect it to weaken, you SELL the pair.

This structure allows traders to find opportunities in both rising and falling markets.

Three Main Types of Forex Markets: Spot, Forward, and Futures

• Spot Market:
  The most common market, where currencies are traded at current market prices. This is the primary market used by retail traders.

• Forward Market:
  Private contracts between two parties to exchange currencies at a future date at a predetermined rate. Often used by businesses to hedge currency risk.

• Futures Market:
  Standardized contracts traded on exchanges. These are transparent but less commonly used by retail traders.

Who Participates in the Forex Market?

The forex market includes a wide range of participants:

• Central banks managing monetary policy

• Commercial banks trading large volumes

• Hedge funds

• Multinational corporations hedging currency exposure

• Brokers providing market access

• Retail traders—an increasingly large group thanks to technology and online trading platforms

Leverage: A Powerful Tool That Requires Caution

Forex trading allows the use of leverage, meaning traders can control larger positions with relatively small capital. While leverage can amplify potential profits, it also magnifies losses to the same extent.

This is one of the main reasons many new traders experience rapid losses when they do not fully understand risk management.

2. Why Does Forex Attract So Many Traders?

According to Investopedia, six key factors contribute to the appeal of the forex market:

Massive Liquidity

Enormous daily trading volume allows for fast entry and exit, minimal order slippage, and fewer issues with being “stuck” in trades.

24-Hour Market

Forex operates across global time zones, enabling trading at virtually any time of day—ideal for busy individuals and part-time traders.

Low Barriers to Entry

Accounts can be opened quickly with relatively small starting capital. Traders can use micro or mini lots, making forex accessible to beginners.

Low Transaction Costs

Most costs are embedded in the spread, and many brokers charge no additional commissions.

Two-Way Trading

Traders can profit whether the market moves up or down by buying or selling accordingly.

Macro-Level Transparency

Prices respond directly to publicly available economic data, interest rate decisions, and macroeconomic news. This transparency allows traders to base decisions on global information rather than speculation.

3. Risks Traders Must Understand Before Entering Forex

Despite its advantages, forex trading comes with specific risks.

Leverage Risk

Leverage magnifies both profits and losses. New traders are often drawn to the promise of quick gains and end up using excessive leverage.

News-Driven Volatility

Major events such as NFP, CPI releases, interest rate decisions, or geopolitical crises can cause sudden price movements, slippage, or stop-losses being filled at unexpected levels.

Forex Is Not a “Get-Rich-Quick” Scheme

Sustainable success requires knowledge, skills, discipline, and a clear strategy. Trading based on luck or emotions usually leads to significant losses.

4. Additional Risks: Scams, Unreliable Brokers, and Chart Issues

This is an area many beginners overlook, yet it is one of the main causes of avoidable losses.

Forex Is Often Used for Scams

Due to its decentralized nature and the rise of social media, many fraudulent schemes exist, including:

• Brokers that refuse withdrawals

• Introducing brokers (IBs) promising guaranteed profits

• “100% winning” trading robots

• Paid VIP signal groups with fabricated results

• Disguised multi-level marketing schemes using forex as a front

A key rule to remember: There is no guaranteed profit in forex.

Unreliable Brokers and Price Manipulation

Not all brokers adhere to international standards. Some may:

• Widen spreads abnormally

• Delay order execution

• Manipulate chart data

• Cause excessive slippage during news events

• Display artificial price spikes not seen in broader markets

A Large Market, But Not Immune to Manipulation

Historically, scandals such as the London Fix revealed that some large institutions coordinated trades to manipulate benchmark exchange rates. While the sheer size of the forex market makes sustained manipulation difficult, these cases highlight the importance of transparent data, especially for retail traders.

How to Protect Yourself

• Choose brokers regulated by reputable authorities (FCA, ASIC, CySEC, etc.)

• Avoid “high profit, low risk” promises

• Check spreads and withdrawal conditions carefully

• Start with small capital

• Avoid high leverage

• Use transparent platforms like Followme to review real trading histories and avoid fake performance data

5. How to Start Forex Trading Correctly and Transparently

Understand How Profits Are Actually Made

Forex trading requires strategy, discipline, and strict risk management. It is not a shortcut to wealth, and every potential return comes with risk.

The most common way to profit is by correctly predicting exchange rate movements:

• BUY (long) when you expect the base currency to rise

• SELL (short) when you expect it to fall

Example:
If you buy EUR/USD at 1.20 and sell at 1.22, you earn 0.02 USD per euro traded.

Beginners are usually advised to start with one or two major pairs, such as EUR/USD, USD/JPY, or GBP/USD, rather than trading many pairs simultaneously.

Carry Trade

Some traders also use carry trades, profiting from interest rate differentials between two currencies. By buying a high-interest-rate currency and selling a low-interest-rate currency, traders can earn interest differentials plus potential price gains if the market moves favorably.

Learn from the Fundamentals

Understanding how to read currency pairs, pip-lot-spread relationships, trends, news, and risk management is essential for responsible and effective trading.

Learn from Real Traders and Real Data

Followme allows you to view:

• Transparent trading histories

• Win/loss ratios and drawdowns

• Trader performance rankings

• Detailed strategies used

This is one of the most effective ways to learn from real results rather than marketing claims.

Start Small, Stay Safe, and Trade with a Plan

New traders should:

• Use low leverage

• Trade micro lots

• Always set stop-loss orders

• Maintain emotional discipline

• Trade only tested and structured strategies

Conclusion

Forex is a vast, dynamic market full of opportunity. But long-term success requires a clear understanding of how the market works, where risks lie, and how to trade transparently using real data.

Coming Next in the Trading 101 Series

• Lesson 2: How to Read Currency Pairs and Understand Forex Charts