Forex Brokers

Forex (FX) is a portmanteau of foreign currency and exchange. In short, it is the conversion of one country's currency into another.

Foreign exchange, or forex, is the conversion of one country's currency into another. In a free economy, a country's currency is valued according to the laws of supply and demand. In other words, a currency's value can be pegged to another country's currency, such as the U.S. dollar, or even to a basket of currencies. A country's currency value may also be set by the country's government.

Beginner investors should spend time learning about the forex market and research which forex broker to sign up with. It's important to find a forex broker that is regulated in the United States or the United Kingdom (U.S. and U.K. dealers have more oversight). There are some forex brokers registered in countries with more lax regulatory oversight, and this could be problematic for retail investors who don't have a solid understanding of the forex market. It is also a good idea to find out what kind of account protections are available in case of a market crisis, or if a dealer becomes insolvent.

Forex can be a highly profitable investment, but as with all high-reward investments, there is a much higher risk involved.

Forex investing has a very low entry point, sometimes as little as $50, and forex traders can use leverage to their advantage by basing position size on the account balance. If you have $10,000 in your forex account, a $100,000 position-or a standard lot-would use 10:1 leverage. Even so, a smaller position will limit your risk.

Although there's a lot of money to potentially be made in the forex market, it would be wise to educate yourself extensively about the market, start small, limit your leverage, and place stop loss orders to limit your downside risk. A stop-loss order effectively activates a market order once a price threshold is triggered. A market order is an order a trader enters to sell or buy a security at the best available price in the current financial market.

The foreign exchange market is extremely liquid and dwarfs, by a huge amount, the daily trading volume of the stock and bond markets. According to the latest triennial survey conducted by the Bank for International Settlements (BIS), trading in foreign exchange markets averaged $6.6 trillion per day in 2019. By contrast, the total notional value of U.S. equity markets on Dec. 31, 2021, was approximately $393 billion. The largest forex trading centers are London, New York, Singapore, Hong Kong, and Tokyo.