Understanding the Forex Market: Basics, Participants, and Key Concepts

In the previous lessons, we became familiar with the concept of financial markets, the main types of markets, the general differences between Forex and stocks, commodities, indices, and crypto, as well as the advantages, disadvantages, and prerequisites of participating in financial markets.

I hope you’ve watched both previous videos carefully and in full, because in any subject, introductory and foundational concepts are extremely important. They create the structure of your business and your professional mindset.

[EMPHASIS] You should always understand your business thoroughly and deeply before getting into its details.

So, if you haven’t watched the previous videos yet, I strongly recommend watching them first. Rest assured that every single topic we included in those videos was essential and necessary.

Remember that throughout this course, you’re expected to trust us and keep your willingness to learn at ten out of ten, so that our educational system can deliver the greatest possible benefit and impact for you.

Okay, let’s begin today’s lesson.

In this lesson, we’re going to become familiar with the Forex market.

We’re not going to start learning technical analysis, money management, trading strategies, or buying and selling yet. In this lesson and the next few lessons, our goal is to gain a very good understanding of the Forex, crypto, and stock markets, install the platforms we need, and learn how to use them.

Naturally, if you’ve already decided to trade in only one specific market, you can skip the videos about the other markets. But if you haven’t decided yet, or if you plan to trade in all of these markets like I do, make sure you watch the complete training video for each market.

In this video, we want to find out:

What exactly is Forex?

Why was this market created, and what need does it fulfill?

Who participates in it?

What is a currency pair, and what does its price mean?

What exactly happens when we click Buy or Sell?

What are pips, pipettes, lots, and leverage?

What is a broker, and how should we evaluate its credibility and quality?

And I want to tell you everything you need to know about Forex.

As I’ve told you before, you’ll learn the main topics in this primary video. You can also find the supplementary Forex material in the supplementary video for this lesson.

Some Forex-related topics are more practical in nature and need to be explained on their specific platforms. We’ll cover those topics in their dedicated lessons, such as the trading strategy development lesson or the lesson on how to use tools and platforms.

So, rest assured that nothing will be left out. As I’ve told you, everything you need to participate in financial markets will be covered thoroughly in this course.

Now, let’s begin with our first question:

[EMPHASIS] What is Forex?

The word Forex is the shortened form of Foreign Exchange, which means the exchange of foreign currencies.

In this market, common national currencies such as the dollar, euro, pound, and others are traded.

The Forex market is a global network for buying, selling, converting, financing, and managing the risks of different currencies.

This market wasn’t created only for traders who want to profit from changes in currency prices. Banks, companies, governments, funds, importers, exporters, travelers, and central banks also need to convert or manage currencies for various purposes.

For example, a European importer needs US dollars to purchase American goods.

An American company must convert dollars into yen to pay the employees at its Japanese branch.

An investment fund may want to hedge the currency risk of its foreign investments.

A bank trades to meet its customers’ needs or manage its own foreign currency holdings.

A central bank may enter the market to implement its exchange-rate policy or manage its reserves.

A trader may also use changes in the value of the euro against the dollar as the basis for a trading position.

Therefore, Forex is both a mechanism for the actual conversion of currencies and a market for transferring risk, financing, hedging, and trading changes in exchange rates.

To give you an idea of the size of the Forex market, the average daily turnover of over-the-counter foreign exchange transactions in April 2025 was approximately 9.6 trillion dollars.

To better understand the size of the Forex market, you only need to know that the New York Stock Exchange, which is the largest stock market in the world, is like a drop in the ocean compared with the Forex market!

[EMPHASIS] The Forex market is an enormous global market.

One of the most important things to understand about Forex is that the global foreign exchange market is primarily an Over-the-Counter market, or OTC.

This means there is no single global building, exchange, or order book where every Spot Forex transaction is recorded.

This market consists of a network of banks, dealers, financial institutions, electronic platforms, liquidity providers, brokers, and customers.

Now, before we become familiar with currency pairs, we need to understand how currencies are named.

The first thing you need to know about currency symbols is that the first two letters of a currency symbol usually represent the country’s name, while the third letter represents the country’s currency.

For example:

USD means United States Dollar.

GBP means Great Britain Pound.

AUD means Australian Dollar.

JPY means Japanese Yen.

CHF means Confoederatio Helvetica Franc.

NZD means New Zealand Dollar.

And CAD means Canadian Dollar.

The euro is different because it doesn’t belong to a single country and is associated with the European Union. For this reason, EUR represents the euro itself.

In the Forex market, currencies are displayed as currency pairs.

In this market, we don’t have a single currency on its own. We always see currencies in pairs, meaning that currencies are always valued against one another.

For example, we don’t have USD or EUR on their own in the market. Instead, we have EUR/USD, which shows the ratio of the dollar to the euro.

When we say:

EUR/USD is equal to 1.1000,

it means that one euro is worth 1.10 US dollars.

[EMPHASIS] The value of one currency is always expressed in comparison with another currency.

For example:

GBP/USD is equal to 1.2700.

This means that 1.27 US dollars are required to purchase one British pound.

Every currency pair has two components:

The first component is the base currency.

The first currency, or the currency on the left, is called the Base Currency.

In GBP/USD, the pound is the base currency.

The second component is the quote currency, or the supporting currency.

The second currency, or the currency on the right, is called the Quote Currency.

In GBP/USD, the dollar is the quote currency.

The price of a currency pair shows us how much of the quote currency is required to purchase one unit of the base currency.

Now, what does an increase or decrease in the price of a currency pair mean?

If EUR/USD rises from 1.1000 to 1.1200, it means that the value of the euro has increased relative to the value of the dollar.

This can happen for two reasons:

The euro has strengthened against the dollar;

or the dollar has weakened against the euro.

If EUR/USD falls from 1.1000 to 1.0800, it means that the value of the euro has decreased relative to the value of the dollar.

This can also happen for two reasons:

The euro has weakened against the dollar;

or the dollar has strengthened against the euro.

Now, an important question:

Do we actually buy currencies in Forex?

The answer depends on the type of transaction.

The first type is institutional Spot trading.

In the interbank market and commercial transactions, a Spot purchase can result in the actual delivery and settlement of two currencies. The settlement date also depends on the currency pair, the contract, business days, and holidays.

However, this isn’t related to our activity as retail traders. The type of activity we engage in is actually leveraged retail trading.

The second type is leveraged retail trading.

A large part of what retail traders know as Forex doesn’t involve the physical purchase and withdrawal of the base currency.

In many jurisdictions, traders trade a leveraged contract such as Rolling Spot FX or a CFD.

In this case, for example, when you trade the EUR/GBP currency pair, actual euros or pounds aren’t delivered to a withdrawable currency account.

You trade changes in the exchange rate of the currency pair, and in reality, you’re simply trading based on your analysis and prediction of the direction of the price.

Your profit or loss is also calculated in your account currency. We’ll explain this thoroughly in the video about creating a Forex trading account.

The broker or dealer is also the counterparty to the contract or the intermediary that executes the trade.

Therefore, when you trade a currency pair such as EUR/GBP, you aren’t actually buying euros or pounds. You’re simply trading a contract based on whether the price of that currency pair will rise or fall, and your profit or loss is calculated in your account’s base currency, such as the US dollar.

We’ll discuss this thoroughly in the video about using MetaTrader.

Now, what exactly does buying or selling a currency pair mean?

First, let’s look at a Buy or Long position.

When you Buy EUR/USD, it means your analysis suggests that the price of the euro relative to the dollar will increase and that the chart will move upward or become bullish.

From an economic perspective, this can happen under one of two scenarios:

The euro strengthens against the dollar;

or the dollar weakens against the euro.

If the price rises, the Buy position makes a profit, and if the price falls, the position incurs a loss.

Now, let’s look at a Sell or Short position.

When you Sell EUR/USD, it means your analysis suggests that the price of the euro relative to the dollar will decrease and that the chart will move downward or become bearish.

From an economic perspective, this can happen under one of two scenarios:

The euro weakens against the dollar;

or the dollar strengthens against the euro.

If the price falls, the Sell position makes a profit, and if the price rises, the position incurs a loss.

[EMPHASIS] As a key point, every order you place is applied to the first currency.

In other words, placing a Buy order on EUR/USD means contractually buying the euro. You use this order when your analysis predicts that the euro will increase in value relative to the dollar, or, in other words, that the EUR/USD chart will move upward.

Similarly, placing a Sell order on EUR/USD means contractually selling the euro. You use this order when your analysis predicts that the euro will decrease in value relative to the dollar, or, in other words, that the EUR/USD chart will move downward.

We’ll discuss this in more detail during the practical lessons on MetaTrader and how to open trades.

So far, we’ve discussed currency pairs and how to place orders on them. Now, we want to examine the different categories of currency pairs.

The first category is Major currency pairs.

In the common retail-market definition, Major currency pairs include the US dollar and one of the major, heavily traded currencies.

These currency pairs are:

EUR/USD,

USD/JPY,

GBP/USD,

USD/CHF,

USD/CAD,

AUD/USD,

and NZD/USD.

The second category is Cross currency pairs.

Cross currency pairs are themselves divided into two categories.

The first category is Minor currency pairs.

Currency pairs that include major global currencies but don’t include the US dollar are called Currency Minors.

For example:

EUR/GBP,

EUR/JPY,

GBP/JPY,

EUR/CHF,

AUD/JPY,

GBP/CHF,

AUD/NZD,

and CAD/JPY.

The second category is Exotic currency pairs.

An Exotic currency pair usually includes one major currency and one currency from an emerging economy or a less liquid market.

For example:

USD/TRY,

USD/ZAR,

USD/MXN,

USD/INR,

USD/THB,

and EUR/TRY.

Now, let’s look at the main participants in the Forex market.

The first group is central banks.

Central banks may participate for purposes such as implementing monetary policy, managing foreign exchange reserves, maintaining financial stability, or intervening in the foreign exchange market.

A central bank’s objective isn’t necessarily to profit from short-term price movements.

The second group is large banks and reporting dealers.

Large banks are among the most important providers of prices and liquidity in the foreign exchange market. They trade with one another and with institutional customers, while managing their own foreign currency inventories and risks.

In April 2025, trades between reporting dealers accounted for approximately 46 percent of market turnover, while their trades with other financial institutions accounted for approximately 50 percent of market turnover.

The third group is smaller and regional banks.

These banks may access liquidity and foreign exchange services through larger banks or electronic networks.

The fourth group is funds and asset managers.

Investment funds, pension funds, hedge funds, and asset managers may trade for hedging and other purposes.

The fifth group is commercial companies.

Importers, exporters, and multinational companies enter the market for payments, receipts, converting foreign income, and hedging exchange-rate risk.

The sixth group is governments and sovereign wealth funds.

These institutions may manage their reserves, foreign currency income, debts, and international investments.

The seventh group is trading firms and non-bank liquidity providers.

In the modern market structure, some electronic and high-frequency trading firms also help provide liquidity and contribute to price formation alongside banks.

The eighth group is Prime Brokers and Prime of Prime brokers.

Smaller institutions may not be able to trade directly with the largest banks. Prime Brokers and Prime of Prime brokers provide them with credit access, liquidity aggregation, and execution services.

The ninth group is retail brokers and dealers.

These companies provide retail clients with a platform, prices, and the ability to open positions. A broker may transfer a client’s order or risk externally, keep it within the firm, or use a combination of both approaches.

And the final group is us: retail traders who enter the market using our personal capital.

The size of retail traders’ transactions is small compared with the institutional market, and retail traders usually access trading products through a broker.

Now, let’s look at the Forex market’s trading hours.

Because financial centers in different time zones operate continuously, the global Forex market is active for approximately 24 hours a day, five business days a week.

The market cycle usually begins in the financial centers of the Asia-Pacific region and then continues through Tokyo, London, and New York.

The well-known trading sessions are:

The Sydney session,

the Tokyo or Asian session,

the London session,

and the New York session.

These sessions don’t have completely fixed boundaries, and their trading hours overlap.

For example, one of the market’s most heavily traded periods is the overlap between the New York and London sessions.

One of the important elements of developing a trading strategy is determining the right time to trade based on the trading sessions.

Many traders choose their trading session based on their personal circumstances and the currency pairs they want to trade.

We’ll discuss this thoroughly in the lesson on developing a trading strategy.

Now, we come to one of the most fundamental and important Forex terms:

[EMPHASIS] What is a pip?

In the Forex market, because the differences between currency-pair ratios are very small, we use a conventional unit called a pip to express changes in one currency relative to another.

A Pip is the commonly used conventional unit for expressing changes in the price of a currency pair.

For most currency pairs, the fourth decimal place represents one pip.

That means:

One Pip equals 0.0001.

For example, a movement in EUR/USD from 1.1050 to 1.1051 is equal to one pip.

Instead of saying that the EUR/USD price changed by one ten-thousandth, we can simply say that it changed by one pip.

Or, for example, a movement from 1.1050 to 1.1100 is equal to 50 pips.

However, there is an exception for yen currency pairs.

For most currency pairs in which the Japanese yen is the quote currency, the second decimal place represents one pip because the price ratio between the currencies is relatively large.

For example, the price of USD/JPY may be 150.20, which is a large number.

In this case:

One Pip equals 0.01.

For example, a movement in USD/JPY from 150.20 to 150.21 is equal to one pip.

This convention was established because of the historical way in which the value of the yen has been displayed.

For all commonly traded yen pairs, including USD/JPY and Cross pairs such as EUR/JPY and GBP/JPY, a pip is usually calculated at the second decimal place.

Now, what is a pipette?

Many brokers display prices with greater precision than one pip so that companies or specific users, such as traders commonly known as scalpers who may need to track price movements smaller than one pip, can place their trades.

Therefore, EUR/USD may be displayed with five decimal places, while USD/JPY may be displayed with three decimal places.

In this case, the smallest digit usually represents one-tenth of a pip, which is sometimes called a Pipette.

For example, in EUR/USD, a price movement from 1.10500 to 1.10501 is equal to 0.1 pip.

In USD/JPY, a price movement from 150.200 to 150.201 is also equal to 0.1 pip.

The next important concept is the lot and contract size.

In the Forex market, we use a unit called a lot to specify the size of a trade.

Under the standard contract convention used by many retail Forex accounts:

One standard lot equals 100,000 units of the base currency.

0.1 lot equals 10,000 units of the base currency.

And 0.01 lot equals 1,000 units of the base currency.

For example, in EUR/USD:

One lot usually represents Exposure to 100,000 euros.

0.1 lot usually represents Exposure to 10,000 euros.

And 0.01 lot usually represents Exposure to 1,000 euros.

However, with many brokers that offer accounts such as micro accounts, one standard lot on those accounts may not be equal to 100,000 units of the base currency.

You don’t need to worry about fully understanding these new concepts yet. At this point, you’re simply becoming familiar with new terms and ideas.

In the dedicated lessons on using trading platforms and placing trades, we’ll cover these concepts thoroughly and in a completely practical way.

Now, we come to the concept of leverage.

In the Forex market, because price fluctuations are very small, we use a tool called leverage to make the market’s price movements more meaningful.

Leverage allows you to create Exposure that is larger than your account balance using a specific amount of capital.

Simply put, you can enter a trade with tens or even hundreds of times more trading power.

For example, leverage of one to one hundred, or 1:100, simply means that any amount of capital you allocate to a trade enters that trade with one hundred times the power. As a result, your profit or loss is also multiplied by one hundred.

So, for example, if a trade’s percentage profit or loss is 0.01 percent, using 1:100 leverage multiplies it by one hundred and increases it to 1 percent.

But you need to understand that leverage doesn’t increase your account balance.

It doesn’t create free money.

It doesn’t limit your losses.

[EMPHASIS] Leverage only increases the amount of Exposure you can control.

Now, let’s talk about Forex brokers.

A Broker is a company that provides customers with access to a trading platform and trading products.

To connect to the Forex market, we need an intermediary company called a broker, which acts as the intermediary between us and the market.

This is how we connect to the Forex market:

First, we register with a suitable and reputable broker. On the next slide, we’ll discuss the signs and requirements of a reputable broker.

After registering with a broker, all deposits and withdrawals take place between us and the broker, and the broker becomes our counterparty.

However, to place trades, we need a trading platform such as MetaTrader 4 or MetaTrader 5.

Once we connect the broker to MetaTrader, we can place all our trades directly inside MetaTrader without having to reopen the broker’s website.

In the video about installing, setting up, and using trading platforms, we’ll thoroughly explain how to register with a broker, connect it to MetaTrader, and use MetaTrader.

Now, let’s examine the criteria for choosing a suitable broker.

When selecting a reputable broker, we need to consider several different criteria.

The first criterion is regulation.

Regulation means that a company operates under the rules and supervision of a competent regulatory authority and is licensed to provide specific services.

Regulation may impose various requirements on a broker, such as minimum capital requirements, financial reporting, the protection of client funds, and other obligations.

However, [EMPHASIS] simply being regulated doesn’t mean that a broker is suitable.

These days, companies seeking to operate as brokers may obtain one of the reputable regulatory licenses by paying certain fees, while still failing to provide suitable services.

The second criterion is examining the costs.

There are various costs involved in participating in financial markets and using a broker. Each broker determines these costs based on its own policies and conditions.

The first cost is the spread.

The spread is the difference between the buying and selling prices.

Examining the spread is important for every trader.

The lower the spread, the more suitable it is for traders, especially scalpers who trade small market movements.

A wider spread makes it more difficult to trade on lower time frames and profit from small price movements.

For example, the broker that my team and I use offers spreads close to zero, and this is extremely important for our trading style.

The second cost is commission.

In addition to charging a spread, some brokers also charge a fee as a commission for their services.

The commission is usually calculated according to the number of lots traded. For example, X dollars per lot traded.

The third cost is the swap, or overnight holding fee.

Some brokers charge an overnight holding fee for trades that remain open for several days.

This may not be important for short-term traders who usually close their trades during the same day, but it’s extremely important for medium-term and long-term traders.

Once again, I can use the broker we work with as an example. This broker doesn’t charge overnight fees, so traders don’t have to worry about paying these types of costs.

These three items are the most important costs associated with using a broker, and they must be examined when determining whether a broker is suitable.

The third criterion is the authenticity of the charts and prices.

This is one of the key factors in evaluating a suitable broker.

I need to explain something here.

In the brokerage industry, we have two terms called A-Book and B-Book.

A broker that transfers users’ money directly to a liquidity provider and earns its profit from users’ commissions is called an A-Book broker.

This type of broker is considered highly reputable because whether a user profits or loses makes no difference to the broker.

However, there are also brokers that keep the user’s money within their own company.

By doing this, when users lose money, the amount they’ve lost remains with the broker. However, the broker also becomes responsible for paying clients’ profits.

These brokers are called B-Book brokers.

Why would they accept this responsibility?

Because, with the liquidity backing they have, they accept this risk based on the fact that more people lose money than make money. As a result, the amount coming in is much greater than the amount going out, allowing them to earn a significant profit.

But why is this important to us?

The reason is that some B-Book brokers may manipulate charts to make more traders lose money, either to increase their own profits or because they don’t have enough liquidity to cover users’ profits and withdrawals.

For this reason, checking the authenticity and accuracy of the charts is one of the important factors in evaluating suitable and reputable brokers.

The fourth criterion is user reviews and feedback.

This may be the most important factor when evaluating a broker’s integrity and services.

A broker may be regulated and may also offer suitable trading costs, but in practice, it may perform very poorly in areas such as user deposits and withdrawals, customer support, server speed, and the collection of factors that can only be evaluated through real-world experience and by actual users.

Therefore, when determining whether a broker is suitable, we must examine user reviews and feedback.

Of course, we shouldn’t rely exclusively on these reviews, but they are a highly influential factor.

For this purpose, we can use broker-rating and review platforms.

In the video about setting up the platforms, I’ll show you all of these points in practice. Together, we’ll register with a broker, install MetaTrader, connect the broker to MetaTrader, and I’ll give you a complete explanation of how to use MetaTrader.

In this lesson, we discussed the Forex market thoroughly and became familiar with it.

If you’d like to expand your knowledge further, make sure you watch the supplementary video for this lesson.

Also, if you have any questions, please feel comfortable asking us through WhatsApp, Telegram, or the comments under this video. Our support team will be happy to guide you.

To conclude, I’d like to share several common misconceptions about Forex with you in less than a minute, so that we can review some of these points and make sure you’ve understood everything properly.

The first misconception:

“Forex is a company or a website.”

No.

Forex is the global network of foreign exchange trading. A broker is only one of the ways to access a product related to this market.

The second misconception:

“MetaTrader is the broker.”

No.

MetaTrader is the platform, while the broker provides the account and trading server.

The third misconception:

“If I click Buy, I will definitely receive the actual currency.”

No.

In leveraged retail trading, a contractual Exposure is usually created. Our objective when using Buy and Sell is to profit from the possible direction of the price movement.

The fourth misconception:

“Leverage of 1:500 means my capital has increased by 500 times.”

No.

Your Balance hasn’t changed. Only your capacity to create Exposure has increased. As a result, both your profit and your loss are multiplied by 500, and this requires specialized risk management.

And the fifth misconception:

“A regulated broker can never go bankrupt or commit misconduct.”

No.

Regulatory supervision reduces the likelihood of certain risks and creates a mechanism for accountability, but it doesn’t eliminate every risk.

I hope you found this video useful.

In the next videos, we’ll discuss how to register with a broker, install MetaTrader, connect MetaTrader to your broker, and use MetaTrader.

You can also watch the dedicated financial market videos to become fully familiar with the crypto and stock markets.

After that, we’ll gradually move into analytical topics, and we’ll be with you throughout this journey until you enter the market fully and professionally.