Investing in the forex exchange – a guide

Investing in the forex exchange, contrary to appearances, is not a complicated activity. Nowadays it is possible to enter the foreign exchange market with a small initial capital, making trading increasingly popular. Besides, Forex is the largest market in the world is characterized by huge liquidity, where daily turnover reaches several trillion dollars.

Investing in the forex exchange – what exactly does it consist in?

Investing in the forex exchange is possible after setting up an investment account, which is established with a selected forex broker. This broker, in turn, provides a trading platform through which you can make Forex transactions.

In the classic version, Forex was a market where large corporations, banks and other financial institutions exchanged currencies with each other. However, speculators noticed that due to Forex’s extremely high liquidity, it was also suitable for quick investments. As a result, the foreign exchange market has turned into a speculative market, and today as many as 90% of the transactions carried out on them are of this type.

The forex market is not focused on exchanging currencies to meet some basic need, such as for foreign trade or on a private level to obtain foreign currency for an exotic trip. Forex trading has metamorphosed into trading in derivative financial instruments. In this form, currency trading doesn’t look like buying and selling in real terms. Currency pairs are the underlying instrument to refer to, for example, futures contracts or CFDs, and transactions can be strengthened by using leverage.

What are CFDs?

In the Forex market, transactions are made on currency pairs, for example USD/EUR, that is, the US dollar to the euro (read also: The best currency to make money on). In this case, the dollar is the base currency and the euro is the amount currency. If a trader on a trading platform decides to make some transaction based on this currency pair, it will not be an actual exchange of euros for dollars. Instead, the trader will use derivative financial instruments, the most popular of which are CFDs.

These are contracts for difference and are a contract between an investor and a broker. Their contract is a bet on how the price of a specific underlying asset, such as a stock, index or gold, will behave. Of course, in the case of the Forex market, the underlying instrument is currency pairs.

Investing in the forex exchange
Investing in the forex exchange

With CFDs, a trader can play both ups and downs, that is, take a long or short position. Therefore, when there is stagnation on the indices, traders do not have much opportunity to make money. Due to the huge liquidity and the possibility to take short positions, Forex trading is possible despite various turbulences.

How to start investing in the Forex exchange?

Investments in currencies can take different forms. Forex exchange rates are based on a low spread, due to the huge number of transactions each day. Besides, investing in the forex exchange is possible from the comfort of your armchair using CFDs and leverage.

The key issue is to set up an investment account, which will give the trader access to the Forex market. Some bank brokerage accounts provide this opportunity, but it is best to use brokers and trading platforms that specialize in investing in the forex exchange.

Brokers allow traders to use , more financial instruments, and swaps, spreads and contracts are much lower with them.

Trading hours and trading sessions

It is worth knowing that in the foreign exchange market, quotations of currency pairs normally take place from 11 pm on Sunday until 10 pm on Friday. They are liquid around the clock, but during the day it is possible to distinguish several session phases, named after the most important financial centers in the world, namely Tokyo, Sydney, London and New York (read also: World stock exchanges).

From the perspective of a trader, the first session of the day is the Asian session, where the vast majority of turnover is generated by the Tokyo market, but also by the Chinese, Australian or Singaporean markets. Then there is the European session, followed by the U.S. session, which is characterized by high activity especially in early trading. In terms of practice, the last hours of the European session and the first hours of the American session are when traders’ involvement is the highest.

Investing in the forex exchange – first transactions

Once a trader decides on the broker of his choice and sets up an investment account, as well as transfers funds for the initial deposit, he can start making his first trades. To do this, he needs to choose a currency pair, such as USD/EUR, and then take a position.

This can be a short position, and in this case the trader anticipates that the dollar will fall against the euro, or a long position, in which case he thinks that the dollar will strengthen against the euro. Depending on the chosen range of rise or fall and the time of the position, as well as the established leverage, the trader either earns or loses.

Settlement occurs together with the closing of the position. This can be done either manually or through functions on trading platforms:

  • Take Profit – allows you to automatically close a position with a specific profit. For example, when the profit reaches 30 percent. This is very helpful when a trader does not want to control his positions all the time, as he also has other activities than online trading (you may also read: Online forex),
  • Stop Loss – allows to minimize the loss. If the trader’s position generates, for example, a 10 percent loss, this function will automatically close the transaction, so the trader will not be at risk of zeroing out his account.

How can you invest in Forex?

There are many ways to invest using currencies. The standard way is to simply buy a certain amount of your currency of choice and wait for its rate to rise enough to make a profit. This, however, is not very common in the forex market. Much more common is the use of CFDs, or over-the-counter derivatives.

When investing in CFDs in real time, a trader can track currency quotes over the Internet, and this helps decide when and what position to take.

With the help of CFDs on currencies, the trader has the opportunity to speculate on the market whether the price of a certain currency pair will rise or fall. Therefore, when playing for an increase in the price of a currency, the trader opens a long position, and when playing for a decrease, a short position.

The big advantage of CFDs is that there are no relatively high barriers to entry. The investment can be undertaken even if the trader is able to allocate only a few hundred dollars for this purpose at the chosen time, as there are no guidelines that apply to the minimum deposit.

If a trader invests in currencies with the help of CFDs, he has the possibility to use leverage. This means that when opening a position, he only needs a certain percentage of the total value of the investment. If he bets on the corresponding CFDs and makes a profit, it will be multiplied, and if not – the broker’s repayment resulting from leverage can deprive the trader of all his funds.

Once the trader has weighed all the pros and cons and is sure that he wants to invest in Forex currency CFDs, he can choose a broker with whom to open an investment account. Its operation is usually free, and the trader pays only a commission on the purchase and sale of contracts, which are also not high. The cost that the trader incurs in doing so is, depending on the type of investment account, either the spread or the spread, which is increased by the commission.

Investing in the forex exchange – styles

In the foreign exchange market, everyone is looking for their own ways to play successfully. One should not decide to invest in forex without any plan, because in stressful moments the trader will not have any guidance and guidelines from which to make any decision. However, even the best investment strategy can be unreliable by overly emotional reactions and panic, but having a plan is always better than not having one.

To invest in the forex exchange effectively, you need to know two analyses – fundamental analysis and technical analysis. Of course, each of them has its supporters as well as opponents. The best option is to use and draw from both of them. It is also worth knowing what they are based on.

Investing in the forex exchange
Investing in the forex exchange

Fundamental analysis is based on the macroeconomic situation prevailing in the market. It is about the main monetary policies of the world’s major economies. With the help of such data as budget forecasts or projected interest rates, those who apply this analysis try to determine in the long term how the rates of specific currencies will behave.

Technical analysis, on the other hand, is based on focusing on the price of currencies themselves, as well as movements on charts where certain trends are noticeable. In this case, it is important for the trader to stick to the trends, as well as to notice certain repeating patterns on the charts.

Investing in the forex exchange – the most popular trading strategies

Forex trading should be based in the chosen strategy:

  • Following the trend – this is the strategy of signing under trends (read also: Forex strategies for beginners). Traders wait for the right sign on the chart to confirm that they have a clear trend,
  • Day trading – in this case, traders close all positions in one day, so they can avoid additional fees for holding overnight positions. This strategy is convenient in that it completes a “day” on each day and you do not have to think about investing all the time,
  • Scalping – this is a type of daytrading, which is based on very fast closing of positions that may last only seconds,
  • Position trading – this is long-term Forex trading. Traders who opt for this strategy are more likely to use fundamental analysis,
  • News trading – this type of trading is based on following the political and economic situation that prevails in the world. Some world events can have a sudden and significant impact on exchange rates.

How does the forex market work? Organization and market participants

In the forex market, it is investment banks that receive, match and transmit offers to buy and sell specific currencies to the international market. Entities that place such orders include investment funds or large companies. In the foreign exchange market, banks also trade for their own account. Some of them do this for speculative purposes, and some do it to, for example, hedge their loan portfolio against exchange rate risk.

When it comes to investing in the forex exchange, there is also an interbank market, to which all the bids and offers that banks collect flow. Importantly, this market is actually formed by two main markets, as well as several smaller ones. The first is the network of entities that use the Electronic Broking Service program, which generate the greater half of all forex trading.

Central banks, on the other hand, are entities that usually become active when something bad happens, such as the currency of a particular country is in danger of crashing. Central banks intervene in the foreign exchange market directly from the interbank system. By making a huge number of bids to buy or sell a particular currency, they try to make its exchange rate stabilize or reach the required level.

Currencies of greatest importance

The most popular among the currency pairs traded on Forex is the EUR/USD pair, or the euro to the US dollar. This pair accounts for almost 1/4 of the turnover, and this translates into a daily volume of more than $1.5 trillion. As a result, the Eurodollar is the most popular and liquid financial instrument in the world.

Other currency pairs that are also popular are dollar/Japanese yen, Australian dollar/US dollar, dollar/Swiss franc. These pairs are among the major currency pairs. The share of the zloty in the forex market is incomparably smaller. Of course, from year to year the popularity of the Polish zloty among investors is increasing, but on the scale of the entire Forex market it is still a margin.

Investing in the stock market and forex – choosing a good broker

No matter what and what amounts a trader would like to allocate to Forex trading, it will be possible only after setting up an investment account. It is worthwhile to choose a trading broker. If a trader enters into cooperation with an untrustworthy company, troublesome consequences may await, such as problems with withdrawing money from the account or concluding transactions. However, this type of situation is becoming increasingly rare, for example, thanks to stronger supervision by regulatory authorities. In addition, more and more brokers understand the importance of reliability and honesty in dealing with clients.

Before a trader decides to choose a particular broker, he should make sure that it has the appropriate licenses, as well as a permit, as well as whether it is not on the black list, i.e. the list of those entities about which regulators have certain reservations. In the case of companies that operate i.e. on the Polish market, such information can be found on the website of the Polish Financial Supervision Authority. It is also worth tracing the opinions about the selected company that are posted on the Internet. This way you can reduce the risk of entrusting your money to a dishonest brokerage firm.

Is it safe to invest in Forex?

Making money on Forex is complicated by the fact that the quotations of certain financial instruments do not always move in the right direction. It is enough for a trader to imagine the opposite situation, i.e. a drop in the EUR/USD rate by 1%. The result will be that the trader will lose, and this will mean a loss of as much as 30%. If the EUR/USD quotation continues to fall, at some point the size of the loss may equal the amount the trader had to invest. In such a case, just a little more than a 3% drop is enough for a trader to lose all the capital he has. Therefore, beware of leverage, as it works both ways. In addition to the chance of earning a very high profit, investing in forex is also associated with the risk of incurring high losses.

Investing in the forex exchange
Investing in the forex exchange

How to make money on forex? Start with education

It is safe to say that no other place provides such attractive conditions for investment as the forex market. It is characterized by high liquidity, low trading costs, the possibility of using leverage, as well as the absence of barriers to entry. But on the other hand, the investment risk in this market is also high. Confirmation is provided by official statistics, which show that the vast majority of people who invest in Forex incur a loss. For this reason, before investing, it is worth considering.

Forex is recommended for people who want to deal with investing in currencies seriously, that is, systematically educate themselves and expand their knowledge. If a trader is thinking about making a quick buck, he should not look for it in the currency market of leveraged CFD contacts. And what is worth remembering when entering the Forex market?

  • Forex trading is best started by practicing and testing your skills on a forex account (demo version). On it, you can learn how to handle CFDs and leverage, as well as stop loss and take profit orders,
  • Before playing, it’s best to shop around in the equity market first. By buying as well as selling real stocks, you can learn a lot,
  • When deciding on a broker, it’s worth checking that it has the appropriate licenses and guarantees from the National Financial Supervision Authority. Using a broker that is not regulated can have unpleasant consequences for the trader,
  • Forex trading is best based on funds that are not needed for daily expenses,
  • It is advisable to prepare in advance for a plan and work on your emotions, which have already got many a person into financial trouble. If the course does not go the trader’s way, you should not, in a panic attack, immediately close the position in question.

Is it possible to make a living from investing in the forex exchange?

Investing in currencies is not in itself risky. The risk is generated primarily by the specifics of the financial instruments that are used for Forex trading. In this case, the trader usually trades CFDs with leverage, which is associated with the mentioned benefits, but also risks.

However, it should be emphasized that it is not easy to make money on Forex successively. The vast majority of currency pairs move in a sideways trend – long-term, in turn, short-term is subject to chaotic price movements. Added to this is the fact that exchange rates are influenced by a number of different factors, such as the rate of economic growth, the level of interest rates, and, in turn, in the short term, the actions of speculators with huge capital or statements by central bank governors.

All this means that only a few traders will be able to make a living from Forex trading. In addition, at the same time there are no golden tips for everyone to learn how to trade Forex successfully.

If a trader accepts high risk and wants to try his hand at Forex trading, he should start by exploring his knowledge of the foreign exchange market and investments. It is worth learning what is base currency, quoted currency, tip, pips, bid price, ask price, lot, etc. It’s worth checking out how to read currency charts, and you should familiarize yourself with technical analysis indicators and investment strategies.

What’s more, a trader should follow real-time forex quotes and try virtual trading on a forex demo account or opt for a forex simulator. Only after such solid preparation is it worthwhile to start trading forex (read also: Online stock market simulator).

However, if the risks associated with the foreign exchange market are too high for the trader, he should be interested in other, safer investments. It is possible that stocks or bonds will be more suitable for such an investor. It is worth remembering yes, that it is possible to invest in currencies on a long-term basis in a traditional way, and not using leverage.

What to keep in mind when deciding to invest in Forex?

It is worth remembering some important points and principles that will make your investments more effective and minimize investment risks.

Diversification of the investment portfolio

While this concept may seem complicated at first glance, it is not at all so. Diversification is about not putting all your capital into one financial instrument or one industry. By doing so, you can protect at least some of your capital when the price of a particular asset begins to fall. Even with a small amount of capital, you can deploy it in different financial instruments.

Investing in the forex exchange
Investing in the forex exchange

Using different sources of knowledge

Forex investing involves the need to expand your knowledge and improve your skills. If a trader wants to get serious about it, he needs to draw knowledge from various sources, opting for a Forex trading course, among others. This type of training is available both online and onsite. In the latter form, they are usually organized in the largest cities. Knowledge can also be drawn from other sources, such as webinars, ebooks, audiobooks and articles that are available online. This will keep the trader up to date with all the news that concerns the Forex market.

The ability to make decisions in cold blood

This is a very important and useful, yet hard to develop skill. Professional and most experienced traders are well aware of this. Emotions, unfortunately, are not a good advisor. Acting under the influence of emotions, such as stress or excitement, unfortunately, does not lead to good investment decisions. It is worth trying to control your emotions and approach investments with detachment and a cool head.

Acceptance of risk in investing in the forex exchange

Investing in the forex exchange is an activity that has always been associated with investment risk. A trader who undertakes forex trading must always keep this in mind and accept that his investments can generate high losses. If he does not accept the risk and the possibility of losing even all his capital, he should not decide to invest in forex.

Invest in those assets that you know

It is important to make transactions only on those financial instruments and which one has an idea. It is impossible for a trader to gain knowledge of all available assets at once. It is advisable to begin the adventure of investing by investing funds in simple and more accessible financial instruments. Later, as he gains knowledge and experience, he can expand his investments and trade in more assets.

Invest as much money as you can lose

As you already know, online forex trading is associated with risk and the possibility of losing a considerable amount of money. Therefore, the capital that a trader allocates for investment should be possible to lose. This means that you should not invest those funds that are necessary to pay important expenses, current bills or car repairs. Moreover, you should also not borrow money to invest in forex, as this is gambling.

Choosing the right broker

The effectiveness of a trader’s investment depends to a large extent on choosing the right broker, so it is worth paying attention to the choice of broker. There are many different brokers on the financial market, so choosing the best one is often not an easy task. To identify a good broker, it is worth taking the help of broker rankings, which are available online.

It is worth keeping in mind that if a broker offers poor services and, for example, offers a platform that will delay the trader’s movements, this can affect the generation of losses. Also, some features of the forex platform will affect the effectiveness of the investments made.

Investing in forex – is it worth it?

There are many reasons why a large number of investors are interested in the forex currency market. It should be noted that each currency must be properly valued against another. This is one of the basic principles of the foreign exchange market. So, how do you start playing in the Forex market in order to have profits from it? Making money in this market involves exchanging one currency for another, and profiting from the change in the exchange rate.

Although this procedure does not seem to be heavily complicated, you need to remember that the volatility of the market is high. You should be prepared for systematic movements, or currency conversions, which occur almost every week. For this reason, investing in forex sometimes ends in profit and sometimes in loss. So, in the long term, it pays to own those currencies that are characterized by long-term appreciation.

The next plus for traders is, of course, the very easy accessibility that the forex market features. In addition to the fact that it operates 24 hours a day, 5 days a week, it is possible to trade on it with a small deposit. However, it is worthwhile to learn beforehand the rules that govern the Forex market. It is necessary to familiarize yourself with the functioning of the market, using a demo account. On it you can train yourself, as well as try out the investment strategy. What’s more, in many cases you can use the demo account for free for a long time or even for an unlimited period, depending on the broker you choose.

In turn, additional support can be obtained by using online forums that are created specifically for this purpose. Participants who are active there are eager to share information, as well as their insights in basically any language. Investors also appreciate access to the aforementioned investment platforms, which feature advanced technology. They are also helpful because in the foreign exchange market you can expect basically instant demand for any currency, regardless of its volume.

Where to start investing in Forex? Ranking of brokers

To start trading online, a trader needs a broker to enable him to do so. Below is a ranking of brokers whose services are worth using.

This is an innovative broker that offers the lowest spreads on the market, as well as 142 currency pairs to choose from. Besides, with the help of this broker’s services you can invest in 3100 other assets. It provides customers with two platforms to choose from – proprietary and Meta Trader 4. The broker is characterized by high security, as it is supervised o regulated by CySEC and FCA.


This is a leader when it comes to Forex and CFD brokers. It offers low spreads, 47 currency pairs, as well as more than 2,100 other financial instruments. The forex platform is modern, friendly and easy to use. The broker offers features such as social and copy trading, and is regulated by CySEC and the FCA, so traders don’t have to worry about using its services.


This is a broker that has been in business for more than 20 years. It offers zero spreads, as it earns with competitive commissions on transactions. Traders have more than 50 currency pairs at their disposal, in addition to about 200 other assets. It provides two trading platforms to choose from – proprietary and Meta Trader 4.

Read also: How to invest on Plus500

Forex market – characteristics

It is worth knowing exactly what the Forex market is for the average individual investor, who gained his experience only on the stock market.

A wide selection of financial instruments

Forex, in particular, offers a large selection of financial instruments. There you can find contracts for all major world currencies. What’s more, the companies through whose mediation one can trade on Forex are expanding their offerings and introducing financial instruments from other markets.

As a result, traders have access to trade contracts that are based on stocks, commodities and global stock indices

Investing in the forex exchange
Investing in the forex exchange

Clear trends

This is a very characteristic phenomenon of the Forex market. Here you can see decisive price movements in one direction. The important thing is that price movements can last a long time. This is important especially for those who use so-called investment systems. Most are based on following the trend, and clearly price movements allow you to earn more.

Low correlation between instruments

Correlation is the mutual behavior of the prices of 2 or more financial instruments. When the prices of two instruments move in the same direction, and moreover, new peaks and dips occur simultaneously, the correlation is high. When the opposite is true, we are talking about low correlation.

As for the forex market, both phenomena occur in it. Instruments that are based on currencies, that is, currency pairs in which on one side is the same currency, show high correlation.

Some stocks, most stock indexes or commodities that belong to certain groups, such as precious metals, behave similarly. Knowing and these relationships, the trader will always be able to find that instruments that are not correlated with each other or the correlation is weak. This means that he will almost always be able to find those instruments that move in different directions.

Trading around the clock

Thanks to the fact that the market is open 24 hours a day, 5 days a week, you can make trades at any time you want, which is a huge advantage especially for people who have many other activities.

High liquidity

As already mentioned, the Forex market is characterized by great liquidity. Trading in the foreign exchange market is mainly carried out by banks, as well as other large financial institutions, which is what causes such high liquidity. As a result, an individual investor can easily buy as well as sell, very often without any price drop.

How to choose a forex and CFD platform?

A forex platform is nothing more than a software with the help of which traders can transact in OTC market instruments. With its help, a trader can open positions, make trades and earn profits, as well as trade the financial instruments available at the selected broker.

What to follow, when choosing a forex platform?

For each trader, what may matter differently when choosing a trading platform. However, as a general rule, you should pay attention to the following:

  • Availability of a forex demo account – currently all reputable brokers give their users the opportunity to use a demo account for free. It is very important that at the beginning of your trading adventure, you should check the functionality of the platform on a demo account,
  • Intuitive platform operation – forex trading for beginners is not immediately clear and simple, so the platform should feature an intuitive interface, making forex trading easier for them,
  • Easy access to the platform – it is also important whether the platform is only available for a web browser or whether there is also a mobile version. The latter will certainly benefit all those who live on the go and value the ability to access their investments anywhere, anytime,
  • The number of markets available through the platform – it is important for a trader to be able to trade those financial instruments he cares about, so it is worth checking in advance what kind of market the chosen broker offers,
  • Access to advanced analytical tools and real-time quotes. Additional tools and features are able to improve the effectiveness of investments and increase profits, so it is important that the investment platform is equipped with them.

Investing in forex is an activity for people who have strong character and are able to accept the big risks that come with trading. However, it is not necessary to have a large initial capital to enter the market, which is a big splash for individual investors.

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