Forex internacional

Forex (FX): How Trading in the Foreign Exchange Market Works.

James Chen, CMT is an expert trader, investment adviser, and global market strategist. He has authored books on technical analysis and foreign exchange trading published by John Wiley and Sons and served as a guest expert on CNBC, BloombergTV, Forbes, and Reuters among other financial media.

Updated November 27, 2022.

Reviewed by.

Reviewed by Charles Potters.

Charles is a nationally recognized capital markets specialist and educator with over 30 years of experience developing in-depth training programs for burgeoning financial professionals. Charles has taught at a number of institutions including Goldman Sachs, Morgan Stanley, Societe Generale, and many more.

Fact checked by.

Fact checked by Yarilet Perez.

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

What Is the Forex or FX?

The foreign exchange market, commonly referred to as the Forex or FX, is the global marketplace for the trading of one nation's currency for another.

The forex market is the largest, most liquid market in the world, with trillions of dollars changing hands every day. It has no centralized location, and no government authority oversees it.

Rather, the forex is an electronic network of banks, brokerages, institutional investors, and individual traders (mostly trading through brokerages or banks).

Key Takeaways.

The forex is a global marketplace for exchanging national currencies. Foreign exchange venues comprise the largest securities market in the world by nominal value, with trillions of dollars changing hands each day. Foreign exchange trading uses currency pairs, priced in terms of one versus the other. Forwards and futures are another way to participate in the forex market.

Investopedia / Paige McLaughlin.

Understanding the Forex.

The Forex market determines the day-to-day value, or the exchange rate, of most of the world's currencies. If a traveler exchanges dollars for euros at an exchange kiosk or a bank, the number of euros will be based on the current forex rate. If imported French cheese suddenly costs more at the grocery, it may well mean that euros have increased in value against the U.S. dollar in forex trading.

Forex traders seek to profit from the continual fluctuations of currency values. For example, a trader may anticipate that the British pound will strengthen in value. The trader will exchange U.S. dollars for British pounds. If the pound then strengthens, the trader can do the transaction in reverse, getting more dollars for the pounds.

Currency Pairs.

In forex trading, currencies are listed in pairs, such as USD/CAD, EUR/USD, or USD/JPY. These represent the U.S. dollar (USD) versus the Canadian dollar (CAD), the euro (EUR) versus the USD, and the USD versus the Japanese yen (JPY).

There will also be a price associated with each pair, such as 1.2569. If this is the USD/CAD pair, it means that it costs 1.2569 CAD to buy one USD. If the price increases to 1.3336, then it now costs 1.3336 CAD to buy one USD. The USD has increased in value against the CAD, so it now costs more CAD to buy one USD.

In the forex market, currencies trade in lots, called micro, mini, and standard lots. A micro lot is 1,000 worth of a given currency, a mini lot is 10,000, and a standard lot is 100,000. Trades take place in set blocks of currency. For example, a trader can exchange seven micro lots (7,000), three mini lots (30,000), or 75 standard lots (7,500,000).

Trading volume in the forex market is generally very large. Trading in the foreign exchange markets averaged $6.6 trillion worth per day in April 2022, according to the Bank for International Settlements.

The largest trading centers are London, New York, Singapore, Hong Kong, and Tokyo.

Click Play to Learn What Foreign Exchange (Forex) Is.

Trading in the Foreign Exchange Market.

The Forex market is open 24 hours a day, five days a week around the globe.

Historically, foreign exchange market participation was for governments, large companies, and hedge funds. In today's world, trading currencies is as easy as a click of a mouse and accessibility is not an issue. Many investment companies allow individuals to open accounts and trade currencies through their platforms.

This is not like a trip to a foreign exchange kiosk. The process is entirely electronic with no physical exchange of money from one hand to another.

Rather, traders are taking a position in a specific currency in the hope that there will be some upward movement and strength in the currency that they're buying (or weakness if they're selling) so that they can make a profit.

Forex Market vs. Other Markets.

There are some fundamental differences between foreign exchange and other markets.

First of all, there are fewer rules, which means investors aren't held to strict standards or regulations like those in the stock, futures, and options markets. There are no clearing houses and no central bodies that oversee the forex market.

Second, since trades don't take place on a traditional exchange, there are fewer fees or commissions like those on other markets.

Next, there's no cutoff as to when you can and cannot trade. Because the market is open 24 hours a day, you can trade at any time.

Finally, because it's such a liquid market, you can get in and out whenever you want and you can buy as much currency as you can afford.

Types of Forex Transactions.

Forex traders transact in one of three distinct marketplaces: the spot, the forward, or the futures market.

The Forex Spot Market.

The spot market is the most straightforward of the Forex markets. The spot rate is the current exchange rate. A transaction in the spot market is an agreement to trade one currency for another currency at the prevailing spot rate.

Spot transactions for most currencies are finalized in two business days. The major exception is the U.S. dollar versus the Canadian dollar, which settles on the next business day.

The price is established on the trade date, but money is exchanged on the value date.

Role of the U.S. Dollar.

The U.S. dollar is the most actively traded currency. The most common pairs are the USD versus the euro, Japanese yen, British pound, and Australian dollar.

Trading pairs that do not include the dollar are referred to as crosses. The most common crosses are the euro versus the pound and the euro versus the yen.

The spot market can be very volatile. Movement in the short term is dominated by technical trading, which bases trading decisions on a currency's direction and speed of movement. Longer-term changes in a currency's value are driven by fundamental factors such as a nation's interest rates and economic growth.

The Forex Forward Market.

A forward trade is any trade that settles further in the future than a spot transaction. The forward price is a combination of the spot rate plus or minus forward points that represent the interest rate differential between the two currencies.

Most forward trades have a maturity of less than a year in the future but a longer term is possible. As in the spot market, the price is set on the transaction date but money is exchanged on the maturity date.

A forward contract is tailor-made to the requirements of the counterparties. They can be for any amount and settle on any date that is not a weekend or holiday in one of the countries.

Forex Futures.

Unlike the rest of the foreign exchange market, forex futures are traded on an established exchange, primarily the Chicago Mercantile Exchange.

Forex futures are derivative contracts in which a buyer and a seller agree to a transaction at a set date and price.

This type of transaction is often used by companies that do much of their business abroad and therefore want to hedge against a severe hit from currency fluctuations. It also is subject to speculative trading.

Example of a Forex Trade.

A trader thinks that the European Central Bank (ECB) will be easing its monetary policy in the coming months as the Eurozone’s economy slows. As a result, the trader bets that the euro will fall against the U.S. dollar and sells short €100,000 at an exchange rate of 1.15. Over the next several weeks the ECB signals that it may indeed ease its monetary policy. That causes the exchange rate for the euro to fall to 1.10 versus the dollar. This creates a profit for the trader of $5,000.

By shorting €100,000, the trader took in $115,000 for the short sale. When the euro fell, and the trader covered the short, it cost the trader only $110,000 to repurchase the currency. The difference between the money received on the short sale and the buy to cover it is the profit.

Had the euro strengthened versus the dollar, it would have resulted in a loss.

Pros and Cons of Forex.


The forex was once the exclusive province of banks and other financial institutions. The internet has blasted the doors wide open.

Entry costs are low and the marketplace is open around the clock. There are many choices of forex trading platforms, including some that cater to beginners. There also are online forex trading courses that teach the basics.


Those financial institutions and the traders who work for them are still there, alongside the neophytes working from home. They have deep pockets, sophisticated software that tracks currency price movements, and teams of analysts to examine the economic factors that make currency rates move.

Currency trading is a fast-moving, volatile arena. It's risky business and can be made riskier by the use of leverage to increase the size of bets.

It's an easy way to lose money fast. Anyone willing to jump into the Forex should get the necessary training in advance, and start slowly with a minimal stake.

Pros and Cons of Forex.

Accessible to individual investors through online trading platforms. Open 24 hours a day world-wide. Relatively light regulation or oversight.

Dominated by professionals and institutions with deep pockets. Volatile prices subject to sudden swings based on news. Relatively steep learning curve for newcomers.

Forex Terms.

There are a number of terms that are used by Forex traders. Here are some of the basics.

Going long: Buying a currency on the belief that its value will increase in a matter of hours. Then it can be sold for a profit.

Going short: Selling a currency on the belief that its value will decrease. It can then be repurchased at a lower price.

Currency pair: Every Forex transaction is an exchange of one currency for another. A currency pair quote looks like this: USD/GBP = $1.15. In this example, the U.S. dollar is the base currency, and the British pound is the quote currency. A trader who wishes to buy British pounds will pay $1.15 for each.

The ask : The price the trader will pay to buy a currency pair.

The bid : The price the trader will pay to sell a currency pair.

The spread : The difference between the buying price and the selling price.

Major Currency Codes on the Forex.

Just seven currency pairs represent the majority of trades on the Forex. They are:

EUR/USD (Euro/U.S. dollar)

USD/JPY (U.S. dollar/Japanese yen)

GBP/USD (British pound/U.S. dollar)

AUD/USD (Australian dollar/U.S. dollar)

USD/CAD (U.S. dollar/Canadian dollar)

USD/CHF (U.S. dollar/Swiss franc)

NZD/USD (New Zealand dollar/U.S. dollar)

How Big Is the Forex Market?

The daily trading volume on the forex market dwarfs that 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 2022. By contrast, the total notional value of U.S. equity markets on Dec. 31, 2021, was approximately $393 billion.

What Is Foreign Exchange Trading?

When you're making trades in the forex market, you're buying the currency of one nation and simultaneously selling the currency of another nation.

There's no physical exchange of money. Traders are taking a position in a specific currency, with the hope that it will gain in value relative to the other currency.

How Does the Forex Market Differ From Other Markets?

The Forex is a decentralized market. It has no physical existence and no owner or management.

There are no clearing houses or central bodies to oversee the forex. That means traders aren't held to strict standards or regulations, as are seen in the stock, futures, or options markets.

It also means there are fewer fees and commissions to pay.

The Bottom Line.

The forex, or FX, is the global marketplace for the exchange of currencies. As such, it determines the value of one currency against another in the real world.

Forex prices determine the amount of money a traveler gets when exchanging one currency for another. Forex prices also influence global trade, as companies buying or selling across borders must take currency fluctuations into account when determining their costs. Inevitably, the forex has an impact on consumer prices, as global exchange rates increase or lower the prices of imported components.

Forex indicators 9

Forex Indicators For Trend Analysis, Moving Averages.

In this article we will show traders some forex trend indicators that are simple but powerful. These forex indicators can be used for daily market analysis, trend analysis of any pair, as well as trade entries. Our trend based trading system works for 28 currency pairs. There are several types of forex indicators for monitoring market trends like Bollinger Bands, MACD, Average Directional Index, RSI trend indicator, SAR and moving averages. Our focus will be examining moving averages in more detail. Moving averages are widely used by forex traders and are great for verifying if a currency pair is trending, not trending or consolidating, early in a trend cycle or deep into a trend on the time frame of choice.

There is an old saying traders have and that is "the trend is your friend". We trade with the trends and larger time frames at Forexearlywarning, and we actively look for existing trends and brand new trends to follow. We define a trend as a long series of movements on an individual pair that favors one direction. Using multiple time frame analysis by individual currency, our analytical technique for our trading system, we can identify new and existing trends on 28 pairs every day.

Different Types Of Moving Averages.

There are several kinds of moving averages. Simple moving averages (SMAs), weighted moving averages, exponential moving averages (EMAs). A weighted moving average gives more emphasis to the latest data. It smooths out a price curve, while making the average more responsive to recent price changes. An exponential moving average weighs more recent price data in a different way. An exponential moving average multiplies a percentage of the most recent price by the previous period's average price. Compared to SMAs, the EMA gives more weight to the most recent price action which means that when price changes direction, the EMA recognizes this sooner. This is one reason why we choose exponential moving averages as our forex trend indicators for our trading system.

Time Periods For Trend Indicators.

It can take a while to find the most optimal time period length for your moving averages setup. We use a 5 time period for the green line and a 12 time period for the red line, using the closing price on each bar to create the average for plotting the colors. This is based on successfully imitating some expensive and powerful forex trend software and systems for multiple time frame analysis that are currently on the market. We suggest using these moving averages rather than endless experimenting, they are tried and true. We can also provide any forex traders with specific instructions on how to utilize these indicators for multiple time frame analysis. These 5/12 time periods will make the trend you're looking for clearly visible, as it develops. If you use a time period of 5 remember only the most 5 recent time period values will be used at each point to create the moving average. Using these moving averages gives you a consistent approach for all 28 pairs. Here is what these forex indicators look like, they look the same on any time frame:

Using moving averages on top of a basic barchart, which is an open-high-low-close chart, is simple and easy to understand, not like the complicated layers of technical indicators most forex traders use. Compare these simple indicators to what most forex traders use. Usually, traders start by comparing a few time frames for their moving averages over a historical chart. Then you can compare how well and how early each time frame signaled changes in the price data as they developed, then make adjustments accordingly. If a certain pair or currency is choppy you can move to another pair or currency, looking for potential trades. At Forexearlywarning we trade 8 currencies and 28 pairs, so this is easy to move past a choppy or non-trending pair to another pair looking for a trend.

Here are the instructions for setting up the free forex trend indicators. There is a video that accompanies the instructions. These free forex indicators can be set up on any Metatrader platform from any forex broker, and they are absolutely free. The Metatrader charting systems also have a built in price alarm system which works very well with the Forexearlywarning trading plans. Installing the free forex trend indicators on a Metatrader platform will provide any forex trader with a basic, functional system for conducting multiple time frame analysis of trends as well as giving any trader the ability to follow the trading plans from The images in this article show how the free trend indicators look on a Metatrader platform. .

Once a trader gets used to using these moving averages for your forex trend indicators they can start to analyze any pair or even the entire market. You can use multiple time frame analysis for your analysis, and eventually start preparing your own trend based trading plans. As you drill down the charts across the various time frames, you can also write down critical areas of support and resistance on each pair you are analyzing.

Now that you understand the basic trend indicator setup we use, we can introduce you to a powerful charting system using the metatrader profiles . With this charting system you can view 7 charts at a time on any time frame by pressing hotkeys on your keyboard. If the CAD/JPY is moving up in the D1 time frame like the example above, you can see what is driving the movement. You can videw the CAD or JPY pairs on one screen and navigate quickly back and forth. Very powerful! We want all forex traders to set up their charts this way.

Why Are Forex Trend Indicators Important?

Following the trends of any financial market is highly beneficial. Trading with the trend will always give you some type of advantage and much better risk/reward criteria. The Forexearlywarning system is a trend based system, with emphasis on the higher time frames. Having easy to set up and interpret trend indicators will facilitate using the system. We are promoting forex traders having a mindset of trading in the direction of the trends and trend evaluation, day after day. A trend is a series of long movements in an individual pair that favors one direction.

Longer-term moving averages define a trend, but shorter-term moving averages can signal its shift faster. That's why many traders watch moving averages with different time frames at once. If a short-term moving averages crosses, it can signal your trend is ending, and time to pare back your position or scale out lots. Smaller time frame moving averages can signal end of larger time frame trends.

Forex trend indicators can indicate up trends, downtrends, or consolidation phases with sideways movement. An uptrend, or bullish trend, means that the price is moving higher. A downtrend, or bearish trend, means the price is moving lower. A great example of an uptrend is the image of the CAD/JPY D1 time frame uptrend, shown above. Moving averages make trends stand out and obvious. Depending on your trading style you can alter your time frame to suit. Swing traders can move to the H4 time frames. For all trades, the smaller time frames and The Forex Heatmap® can be used for trade entries into the higher time frames.

So many advantages to using forex indicators like moving averages: They are easy to set up, easy to interpret, can be used to analyze individual currencies or any pair, can be used for multiple time frame analysis, easy to spot consolidation phases compared to other types of trend indicators, they can be used to follow our trend based trading plans or to develop your own trading plans, can be use with multiple time frames for support and resistance level identification, and can be used with our forex market analysis spreadsheet to analyze currencies like a professional trader.

Forex Trend Indicators, Consolidations.

When a currency pair is consolidating or going sideways, using moving averages will highlight the sideways movement with the red and green colors on the lines. Consolidations are easier to spot with moving averages and they stand out well on the chart. A sideways trend, where the price is moving sideways. Sideways trends and consolidations are good, because you can prepare to enter the next movement when a new trend forms and ride the new trend up or down.

Sideways trends and consolidations mean that the pair you are looking to trade is "getting ready" to move, the pair is not trending now but it could be soon. When you combine moving averages with our other trading system components, like price alerts, news drivers, and The Forex Heatmap®, traders can spot new trends or new movements week after week, and start to create a powerful trading system. If a currency pair is consolidating and moving sideways you can set a price alert looking for a breakout in either direction. Since consolidation phases always precede movements and new trends, price alerts are extremely valuable as part of any moving average system. When the price alerts hit you can also confirm the entry with The Forex Heatmap® forex heatmap , if you confirm a new trend after a consolidation, you can enter a new trend and now ride the trend for several days or possibly much longer.

In this example above you can see that the AUD/USD is consolidating and then it starts to move because the USD starts to weaken and this is detected by our on our real time trading indicator, The Forex Heatmap ® . This movement may be the start of a new up trend, or possibly a resistance breakout.

Forex Trend Indicators, New Trends.

One powerful reason for using trend indicators is to locate the beginning of the trend and enter trades there, so as a trader you can ride the trend up or down and do less work while still making a lot of pips. This is especially true on the higher time frames. Let's look at the example below. At point number 1 and 2, this is the beginning of the trend or near the beginning of the trend. If you enter at these points, your risk to reward ratio is very low and the potential pips you can make is high. At point number 2 the trend is more established and you can still buy the pair, but your risk to reward ratio is lower. At point number three the pairs start to consolidate and the trend is most likely over. In these cases, using moving averages for your forex trend indicators is validated to know where you are in the overall trend. Using moving average crossovers on the higher time frames is also validated, and this technique can be used on all 28 pairs we follow.

How do you enter a trade in the direction of the trend? Once you have identified the direction of the primary trend, you can enter trades by monitoring the pairs for movement with an audible price alert, then confirming the buy or sell with excellent tools like The Forex Heatmap®. In the example above, if you are near points number 1 or 2, you can enter a buy on the CAD/JPY if the CAD is strong or if the JPY is weak, or both. The heatmap will confirm this market condition.

Forex Broker Charts.

Forexearlywarning provides the free trend indicators to its clients, however if you are currently using a high quality forex charting system you can set up the free forex indicators for monitoring market trends on your favorite charting system as well. The free trend indicators are just exponential moving averages and in most cases can be set up on any high quality broker charting platform. Just make sure you have at least 9 customizable time frames and the charting platform you use also has price alarms/alerts. They work fine as forex trading indicators for trends. We can show you various options for setting up your forex trend indicators to match our trading system.

All forex brokers provide their clients with some type of charting system, some charting systems are pretty bad and some are fantastic. Using Metatrader is not a requirement but Metatrader, although basic, is a forex industry standard. We would never discourage a trader from abandoning their favorite charting platform as long as the free trend indicators can be mimicked and installed on that particular platform. You may wish to set up a few additional time frames (more than 9) if the charting platform you use will allow for that.

Conclusions About Forex Trend Indicators - Exponential moving averages are great for forex trend following. We provide a set of free trend indicators to any forex trader to get started with trend analysis and to have all of the basic functions you need to follow the trends of the forex market along with our trading plans. A ny charting package you choose should have at least 9 time frames and price alerts. If you have a basic charting system, moving averages, price alerts and access to The Forex Heatmap ®, you now have some solid components for finding new trends, notification of price movement, and buy or sell trade confirmation across 28 pairs.