A daily trading volume of around $7 trillion, a 24-hour decentralized market, high leverage, and an easy start with a demo account are some of the features that make Forex a suitable market for trading and speculation.
Forex market is international market that operates globally; Therefore, no specific organization or entity can manipulate its prices.
What are the Features of Forex?
The currency pair market is not dependent on any specific entity; in fact, decentralization, trading volume, liquidity, and the provision of high leverage are the key features of Forex.
1- Trading Costs and Broker Income
Forex traders must consider the costs of commission, swap, and spread when trading with brokers:
- Spread: The difference between an asset's buy (Ask) and sell (Bid) price. The Ask is the most attractive (lowest) price among sellers, and the Bid is the highest price among buyers;
- Swap or Overnight Interest: The cost incurred for holding a position overnight. The swap is calculated based on the interest rate difference between the bought and sold currencies;
- Commission: The fee charged by the broker for executing trades.
These are the income sources for brokers; however, brokers offer accounts with different features (such as swap-free accounts, low spreads, or no commission) for different users.
To learn about different brokers’ commissions and costs, read the TradingFinder Forex broker reviews.
2- Trading Volume in Forex
Forex traders trade on currency pair fluctuations under CFD contracts. In CFD trading, the trader does not own the asset and only trades or speculates on the price changes of a currency pair; CFD contracts are one of the Forex Features.
Trading volume in Forex is measured based on the number of contracts in lots, where 1 lot is equivalent to 100,000 units of a CFD contract.
For example, when you buy the EUR/USD currency pair with a volume of "1 lot" (long trade), the trading volume is 100,000 CFD contracts, which is equivalent to 100,000 euros.
To determine the appropriate trade size (lot size) based on your account balance and risk management, you can use the TradingFinder Position Size Calculator Tool.
Pip Value and Profit/Loss in Forex
Profit and loss in Forex trading vary based on the lot size (trading volume).
In currency pairs involving the US dollar, with a trade size of 1 lot, each 1-pip movement equals a profit or loss of $10. In this case, the pip value (Pip Value) is $10.
Note: A pip is the smallest unit of price change in most currency pairs; measuring price fluctuations in pips is a characteristic of Forex market. The formula for calculating Pip Value is:
Position Size or Contract Size
Contract Size indicates how many contracts are included in one lot for a specific asset.
The contract size for all currency pairs in 1 lot is 100,000. However, the contract size for other assets such as oil, silver, gold, etc., varies across different brokers.
3- Forex Market Trading Hours
The Forex market is open 24 hours a day, five days a week (excluding Saturdays and Sundays). The 24-hour day is divided into four sessions:
- Sydney Session: The market is less active during the Australian session, and the Australian and New Zealand dollars are mostly traded;
- Tokyo Session: During the Tokyo session, Asian markets become active but remain less volatile, and currencies such as AUD and JPY are in focus;
- London Session: With the start of the London session, liquidity increases, and the impact of European and global news is observed;
- New York Session: With the start of the American session, liquidity and volatility peak, and U.S. news influences the market.
When the London and New York sessions overlap, the market experiences high liquidity and intense volatility.
To view the market session during trading hours, you can use the TradingFinder Forex Sessions & Market Hours tool.
4- Decentralized and High Liquidity
The Forex market, with a daily trading volume of approximately $7 trillion, is the largest financial market in the world. Reasons for the high trading volume in Forex:
- 24-Hour Market: This feature, along with market stability and reasonable volatility, attracts traders from around the world to Forex;
- Decentralized: Unlike stock exchanges that operate within specific organizations, Forex trading is conducted decentralized through OTC platforms and is accessible in all countries;
- High Leverage: Forex offers high leverage (up to 1:2000), which not only adds to the appeal but also increases trading volume;
- Participation of Banks and Financial Institutions: Most of the Forex market volume is provided by banks, governments, and international financial institutions that must conduct currency transactions to manage foreign exchange reserves and finance international projects.
5- Leverage
High leverage in Forex is an advantage compared to other markets; however, this also increases the risk of trading. Comparison of leverage in different financial markets:
Market | Leverage (Typically) |
Stocks | 1:2 to 1:10 |
Forex | 1:50 to 1:2000 |
Crypto | 1:2 to 1:1000+ |
Futures | 1:10 to 1:100 |
Commodities | 1:10 to 1:20 |
Bonds | 1:2 to 1:5 |
Commodity Exchange | 1:2 to 1:4 |
6- Easy Start Without Initial Capital
In Forex, it is possible to start trading with a demo account and trade without real money, which is ideal for beginner traders. Advantages of a Forex demo account:
Option to Use a Cent Account
In a cent account, the balance is displayed in cents. For example, if you deposit $10, your balance will be 1000 cents. This account is suitable for individuals with little trading experience or those who want to trade with small capital.
Conclusion
The deep market and high liquidity make Forex a manipulation-resistant market with relatively reasonable volatility.
Forex offers attractive features such as high leverage, 24-hour trading, and decentralized (OTC) transactions, which encourage traders to participate.
