TRADING 101

TNFX CURRICULUM
PATREON MEMBERSHIP

METATRADER

MetaTrader is a leading electronic trading platform widely used for forex, commodities, and CFD trading. Developed by MetaQuotes Software, it offers two primary versions: MetaTrader 4 (MT4) and MetaTrader 5 (MT5). MetaQuotes Software, established in 2000, released MT4 in 2005 and MT5 in 2010. The company is headquartered in Cyprus, with representative offices globally, including locations in Turkey, Australia, China, and Singapore. By April 2013, MT4 had amassed over one million users worldwide. The platform's widespread adoption is evidenced by its use by over 100,000 forex brokers globally, serving millions of traders.

THE FOUNDATION OF FOREX 101

How The Forex Market Works

Forex is a global, decentralized market where currencies are traded without a central exchange. It operates as an electronic network connecting banks, financial institutions, and individual traders, facilitating the buying and selling of national currencies.

The Forex market is open 24 hours a day, five days a week, with opening and closing times depending on regional business hours. It is structured into four major trading sessions: the Sydney session, Tokyo session, London session, and New York session.

Trading begins with the Monday morning opening of the Sydney session and continues uninterrupted until the Friday afternoon close of the New York session. This round-the-clock availability allows traders to participate at their convenience, regardless of time zones.

Spain (BME)
Poland (GPV)
Hong Kong (SEHK)
Singapore (SGX)
Thailand (SET)
Mexico (BMV)

US (NYSE, NASDAQ)
Canada (TSX)
UK (LSE)
Germany (Xetra)
France (Euronext)
Russia (MOEX)

Who Trades Forex

The main players in the Forex market our as follows:

– Central Banks
– Major Commercial Banks
– Investment Banks
– Corporations For International Business Transactions
– Hedge Funds
– Speculators
– Pension & Mutual Funds
– Insurance Companies
– Forex Brokers

CURRENCIES TRADED IN FOREX

Currencies are always traded in pairs the pairs have a unique notation that expresses what currencies are being traded for example Gold and Dollar pair is XAU/USD. The currency left of the pair is called the base currency, and the currency right of the pair is called the quote or counter currency.

When you place an order to buy the EUR/USD, you are actually buying the EUR and selling the USD. If you were to sell the pair, you would be selling the EUR and buying the USD. So if you buy or sell a currency PAIR, you are buying/selling the base currency.

Forex pairs are divided into Major, Minor, & Exotic.

Major currency pairs are made up of the most commonly traded currencies, which are listed below:

USD – US Dollar
EUR – Euro
JPY – Japanese Yen
GBP – British Pound
CHF – Swiss Franc
CAD – Canadian Dollar
AUD – Australian Dollar
NZD – New Zealand Dollar

A major currency pair is one that includes the US dollar, such as EUR/USD, USD/JPY, or GBP/USD.

– EUR/USD Euro against US Dollar
– USD/JPY US Dollar against Japanese Yen
– GBP/USD British Pound against US Dollar

Forex minor pairs are made up of these major currencies that do not include the US dollar.

These pairs include EUR/GBP, EUR/CHF, AUD/NZD, etc.

Exotic currencies are unique, such as the Hong Kong dollar (HKD), Norwegian krone (NOK), South African rand (ZAR), and Thai baht (THB). Major currency pairs are the best currency pairs to trade for beginners due to daily volatility and tight spreads.

FOREX CORRELATION

Positive Correlation
Three of the most actively traded currency pairs in the Forex market—GBP/USD, AUD/USD, and EUR/USD—exhibit a strong positive correlation. This is primarily because the U.S. dollar serves as the counter currency in each of these pairs. As a result, any fluctuation in the strength of the U.S. dollar tends to impact all three pairs in a similar direction. Additionally, the NZD/USD, commonly referred to as the "Kiwi," also shares a positive correlation with these majors, reinforcing the interconnected movement of USD-based pairs.

Negative Correlation
In contrast, pairs such as USD/CHF, USD/JPY, and USD/CAD typically demonstrate a negative correlation with the aforementioned majors. In these pairs, the U.S. dollar is the base currency, which means they often move in the opposite direction to pairs like EUR/USD or GBP/USD, where the USD is the counter currency. This inverse relationship is crucial for traders to understand, especially when managing multiple positions or building hedging strategies.

Forex Currency Pair Correlation

✅ Positively Correlated Currency Pairs (tend to move together)

These pairs typically move in the same direction due to shared influences like risk sentiment or common currency exposure.

EUR/USD and GBP/USD – Strong positive correlation. Both are influenced by USD movement and often track similarly.

EUR/USD and NZD/USD – Moderate to strong positive correlation. Both are quoted against USD; move similarly when USD strengthens or weakens.

AUD/USD and GBP/USD – Moderate positive correlation.

AUD/USD and EUR/USD – Moderate to strong positive correlation. Risk-on currencies vs. USD.

AUD/USD and USD/CAD – Moderate correlation; both commodity-linked (AUD – gold, CAD – oil).

AUD/USD and USD/JPY – Can show positive correlation during risk-on environment

GBP/USD and USD/JPY – Sometimes positively correlated during risk sentiment shifts.

🔁 Negatively Correlated Currency Pairs (move in opposite directions)

Typically, if one pair goes up, the other goes down.

EUR/USD and USD/CHF – Strong negative correlation (often -0.90 or more). Safe-haven behavior of CHF and anti-USD direction make them move inversely.

GBP/USD and USD/CHF – Moderate to strong negative correlation.

USD/CHF and USD/JPY – Often weak to moderate positive correlation (but USD commonality dominates).

GBP/USD and USD/JPY – Can also be negatively correlated depending on USD’s role in market sentiment.

When trading the British Pound versus the U.S. Dollar (GBP/USD), you are indirectly also exposed to movements in Euro versus British Pound (EUR/GBP), as both pairs share a common currency. This interconnection means that the GBP/USD trade is inherently correlated with EUR/GBP, making it essential for traders to understand how currency pairs influence one another. Recognizing which pairs tend to move together and which tend to move inversely is a valuable analytical tool—but it's not always straightforward.

Forex correlations are dynamic, influenced by shifting market sentiment, economic data, and geopolitical events. These factors can change daily, causing formerly strong positive correlations to weaken or even reverse. Moreover, correlations can vary across different timeframes—a pair that shows strong alignment over a 6-month period might behave very differently on an hourly chart. This is why many traders analyze correlations across multiple timeframes to better align their strategies with current market behavior.

Key Market Indicators

The U.S. Dollar Index (DXY) measures the strength of the U.S. dollar against a basket of major currencies. Its movements significantly impact gold, U.S. Treasuries, the stock market, and oil prices.

DXY Rises

U.S. Treasuries Yields ↑, Prices ↓ – A stronger dollar often leads to higher interest rates, pushing bond yields up and bond prices down.
Stock Market (NAS100, US30) ↓ – A strong dollar makes U.S. exports more expensive, reducing corporate profits and weighing on stocks.
Gold (XAU/USD) ↓ – A stronger dollar makes gold more expensive for foreign buyers, reducing demand and lowering prices.
Oil (WTI, Brent) ↓ – Since oil is priced in USD, a stronger dollar makes oil more expensive for non-U.S. buyers, decreasing demand and lowering oil prices.

DXY Falls

U.S. Treasuries Yields ↓, Prices ↑ – A weaker dollar is often linked to lower interest rates, reducing bond yields and increasing bond prices.
Stock Market (S&P 500, Dow) ↑ – A weak dollar makes U.S. exports more competitive, boosting corporate earnings and stock prices.
Gold (XAU/USD) ↑ – A weaker dollar makes gold cheaper for foreign buyers, increasing demand and pushing prices higher.
Oil (WTI, Brent) ↑ – A weaker dollar makes oil cheaper for foreign buyers, increasing demand and driving prices higher.

External factors such as geopolitical tensions, supply chain disruptions, and central bank policies can influence these relationships.

MARKET MOVERS ANALASIS

Fundamental analysis is the analysis of what is happening in the real world, including economic, political, and business news and events that affect currency supply and demand. For instanec, the Australian dollar value may fluctuate after the Reserve Bank of Australia’s interest rate announcement, which will then affect the movements of all currency pairs, including the AUD.

The economic indicators that have the greatest impact on the forex market are:

– Interest rates of national banks (e.g., European Central Bank or US Federal Reserve)
– Gross Domestic Product Growth (GDP)
– Number of jobs outside the agriculture sector (known as non-farm pay)
– Unemployment rate
– Consumer Price Index (CPI)
– Retail Sales
– Industrial Production

Technical analysis helps predict future market movements based on the information obtained from the past using indicators. Learning how to read charts using Japanese candlesticks and volume movements study of pairs.

our tools that help as tools for technical analysis. These charts represent the price movements of currencies over a certain period of time, as well as technical indicators. The technical indicators are obtained through mathematical processing of averaged and other characteristics of price movements.

SWISS GOLD

The correlation between the Swiss Franc (CHF) and gold is largely influenced by their roles as safe-haven assets. Both are typically sought after during periods of economic uncertainty, geopolitical instability, or financial market volatility. As a result, they often move in the same direction, with their values rising when investors seek safe assets.

Historically, the correlation between the Swiss Franc and gold tends to be moderately positive, meaning that when gold prices rise—often due to concerns like inflation or a weaker USD—the Swiss Franc tends to appreciate as well. Additionally, gold and the USD/CHF pair often show an inverse relationship, as gold is priced in USD and a weaker dollar typically leads to higher gold prices while strengthening the Swiss Franc. Therefore, when gold prices climb, the USD/CHF pair tends to decline, reflecting a stronger CHF.

Traders closely monitor this relationship to gauge market sentiment and risk appetite, with both assets rising in times of global financial instability or market stress.

XAU/USD

XAU/USD represents the value of one ounce of gold in terms of US dollars and is one of the most liquid and widely traded commodities in the forex market. Gold is considered a safe-haven asset, often rising during periods of economic uncertainty, geopolitical tensions, or financial crises, while the US Dollar typically weakens in such times, further driving gold prices higher. This creates an inverse relationship between XAU/USD and the strength of the US Dollar—when the USD weakens, gold tends to rise, and when the USD strengthens, gold usually declines. Additionally, gold is seen as a hedge against inflation and currency devaluation, attracting investors during inflationary periods. The price of XAU/USD is influenced by factors such as interest rates, geopolitical risks, and market sentiment.

USOIL

In summary, USOil in the forex market is a highly traded and volatile asset, influenced by supply and demand dynamics, geopolitical factors, and the strength of the US dollar. Due to its volatility and liquidity, it provides numerous opportunities for traders, though it requires a good understanding of the factors that influence global oil markets.

PETRO DOLLAR

The petrodollar refers to US dollars earned by countries through the export of oil. Since the 1970s, the global oil market has been predominantly priced and traded in US dollars, a system established after the United States made agreements with oil-producing nations, particularly in the Middle East, to price their oil exports in USD in exchange for military protection and favorable trade terms. This arrangement has created a persistent global demand for the US dollar, as countries purchasing oil need to hold and trade in USD, which has reinforced the dollar’s status as the world’s primary reserve currency.

This system offers several economic benefits to the United States. The petrodollar allows the US to maintain trade deficits without negatively impacting the value of the dollar. Additionally, countries holding large reserves of petrodollars often reinvest them in US assets, such as Treasury bonds, which helps finance US government debt. Oil’s role as a global currency ensures that the US dollar remains central to international trade, especially given the importance of oil in the global economy. The trade of oil in US dollars has had significant implications on currency markets, global financial systems, and geopolitical relations.

Despite the petrodollar system’s long-standing dominance, there have been ongoing discussions about moving away from the dollar in oil transactions. Countries like China, Russia, and Iran have explored alternatives to USD for settling oil trades, which could gradually challenge the dollar’s global supremacy. However, transitioning away from the petrodollar system is complex and would require significant shifts in global trade practices. In conclusion, while the petrodollar has played a central role in maintaining the US dollar’s dominance, there are emerging shifts that could impact the future of the system.

Non-Farmer Payrolls (NFP)

NFP, or Non-Farm Payrolls, is a crucial monthly employment report published by the U.S. Bureau of Labor Statistics (BLS). It tracks the number of jobs added or lost in the U.S. economy during the previous month, excluding employment in farming, government, private households, and non-profit organizations. Released on the first Friday of every month at 8:30 AM ET, NFP is one of the most closely watched economic indicators, particularly by forex traders, due to its significant impact on market volatility and the U.S. dollar.

Trading NFP can be both risky and rewarding. The report often causes sharp price movements, leading to slippage, wide spreads, and false breakouts—especially for unprepared traders. However, with the right strategy and risk management, these volatile moves can offer excellent profit opportunities.

Quantum Trading

"Forex Quantum"

Refers to a range of tools and strategies that leverage advanced technologies-such as quantum computing, artificial intelligence (Al), and sophisticated trading indicators-to enhance performance in the foreign exchange (Forex) market.

Key Components

Currency Strength Indicator (CSI)

Evaluates the strength of major currencies to identify potential trading opportunities.

Volume Point of Control (VPOC)

Highlights price levels with significant trading volume, indicating potential support and resistance zones.

Trend Monitor

Tracks market trends to help traders stay aligned with prevailing market directions.

How To Trade Forex

1. Choose a Forex Broker

✔ Regulated platform (FCA, CFTC, ASIC, etc.)
✔ Competitive spreads & leverage
✔ User-friendly trading platform (MetaTrader 4, MetaTrader 5, cTrader)
✔ Fast execution & liquidity

2. Open and Fund a Trading Account

Deposit funds via bank transfer, credit/debit card, or crypto (depending on the broker).

3. Set Up Leverage

Leverage allows traders to control a larger position with a smaller amount of capital. Setting up leverage depends on your risk tolerance and trading strategy.

(e.g., 50:1, 100:1, or 500:1)

4. Master Market Analysis

Combine technical, fundamental, and sentiment analysis to make informed trading decisions.

5. Learn Trading Strategies

Scalping – Short-term trading with quick, small profits.
Day Trading – Buying and selling within a single trading day.
Swing Trading – Holding trades for days or weeks based on trends.
Position Trading – Long-term trading based on fundamental analysis.

6. Optimize Trade Execution & Order Types

Use advanced order types to improve trade efficiency:

Limit Orders – Execute trades at a specific price, avoiding slippage.
Stop-Loss & Take-Profit Orders – Protect capital and lock in profits automatically.
Trailing Stops – Adjust stop-loss dynamically as price moves in your favor.
Hedging Strategies – Use correlated assets to reduce exposure to adverse movements (e.g., long EUR/USD & short USD/CHF).

7. Manage Risk Effectively

Use Stop-Loss & Take-Profit Orders – Set automatic limits to minimize losses and lock in profits.
Risk Management – Never risk more than 1-2% of your capital on a single trade.
Diversification – Avoid putting all funds into one currency pair or strategy.

8. Develop a Robust Trading Strategy

Scalping – High-frequency trading strategy targeting small profits from rapid price movements. Requires ultra-fast execution and low spreads.
Day Trading – Intraday trading based on technical setups and price action, avoiding overnight risks.
Swing Trading – Captures medium-term trends over days or weeks, utilizing key support/resistance levels.
Position Trading – Long-term trading based on macroeconomic trends, suitable for those with a high risk tolerance.
Algorithmic & AI Trading – Develop custom trading bots, expert advisors (EAs), or AI-based models to automate trading strategies on platforms like MetaTrader 5 (MT5).

9. Execute Live Trades

Choose a currency pair.
Decide on trade size (lot size).
Analyze the market using your chosen strategy.
Open a buy (long) or sell (short) position.
Set stop-loss and take-profit levels.

10. Monitor & Adjust Your Trades

Keep track of open positions and adjust based on market conditions.
Use economic calendars to stay informed about upcoming events.
Learn from your mistakes and refine your trading plan.

Before making a trade in the forex market, it’s crucial to determine the type of trade you want to execute—whether going long (buying) or short (selling)—and to understand the costs involved, including the spread, which is the difference between the bid and ask price. The bid price represents the price at which you can sell a currency, while the ask price is the price at which you can buy. A long trade involves buying a currency pair with the expectation that its value will increase, allowing you to sell at a higher price for a profit. Conversely, a short trade involves selling a currency pair with the expectation that its value will decline, enabling you to buy it back at a lower price and profit from the difference. Exchange rates fluctuate in response to economic news and market sentiment. For example, if a weak U.S. non-farm payroll (NFP) report is released, signaling economic slowdown, traders may anticipate a decline in the U.S. dollar's value, prompting them to sell USD pairs such as USD/JPY or buy EUR/USD. Understanding these fundamental factors helps traders make informed decisions and capitalize on market movements.

Buy

In forex trading, buying (going long) refers to acquiring the base currency of a currency pair while simultaneously selling the quote currency, with the expectation that the base currency will appreciate in value. This strategy is employed when traders anticipate favorable market conditions, such as strong economic data, central bank policies, or technical indicators signaling an uptrend.

Buying EUR/USD at 1.1000 means purchasing euros while selling U.S. dollars. If the exchange rate rises to 1.1200, the trader can close the position at a profit. Successful long trades require a strategic approach, incorporating risk management, trend analysis, and a comprehensive understanding of market dynamics.

Sell

In forex trading, selling (going short) refers to the act of selling the base currency of a currency pair while simultaneously buying the quote currency, with the expectation that the base currency will depreciate. Traders initiate short positions when they anticipate bearish market conditions, driven by factors such as weak economic data, central bank policies, or technical indicators signaling a downtrend.

Selling GBP/USD at 1.3000 implies that the trader is selling British pounds while acquiring U.S. dollars. If the exchange rate declines to 1.2800, they can close the position by buying back GBP at a lower price, profiting from the 200-pip move. Short selling is a key strategy in forex, enabling traders to capitalize on market downturns by leveraging price fluctuations, risk management techniques, and in-depth market analysis.

Major Market Participants

1. Government - Issue Currency (USD Dollar / EUR Euro / GBP Pound)

2. Central Banks - FED (Federal Reserve) / BOE (Bank of England)

3. Finacial Institutions - JP Morgan / HSBC / UBS / CITI / BlackRock

4. Hedgers - Citadel / AQR Capital Management (Companies generating positive returns, regardless of market conditions).

5. Speculator - Sophisticated risk- taking investors with expertise in the markets.

6. Retail Trader - Only 20% of market.

Popular Forex Trading Strategies

Scalping

A high-frequency trading strategy that involves buying and selling currency pairs within seconds to a few hours. Scalpers aim to make numerous small profits throughout the day, relying on quick execution and minimal price movements to accumulate gains.

Intraday Trading

A more structured approach than scalping, focusing on daily price trends. Trades typically last between one to four days but are usually executed within the key trading sessions of major forex markets.

Swing Trading

A medium-term strategy that targets larger price movements than scalping or intraday trading. Swing traders hold positions for several hours to a few days, making it an ideal choice for those who prefer less screen time while still capturing market trends.

Forex Hedging

A risk management technique where traders minimize potential losses by taking opposite positions in the market. This can involve placing both long and short trades on the same currency pair (e.g., GBP/USD) or trading two correlated currency pairs to offset risk.

Martingale Strategy

A high-risk strategy where traders double their trade size after a loss to recover previous losses once a successful trade occurs. While this approach can be profitable in theory, it carries significant risk and is not recommended for beginners.

Grid Strategy

An automated trading approach that places buy stop and sell stop orders at fixed intervals (e.g., every 10 pips). This strategy allows traders to capitalize on natural market movements without manually entering trades.

FOREX BROKERS

Regulated Brokers – It is important to ensure that the Forex broker used is regulated and has a license to carry out financial activities. The broker is regulated by agencies such as the Commodity Futures Trading Commission (CFTC) or Financial Conduct Authority (FCA) and ensure that they are allowed to operate in your country.

Broker’s reputation – Do a background check of forex brokers and check their ratings, which are regularly updated by various companies based on the reviews of other traders. Ratings allow you to see the general picture of the market. In any case, attention should be paid to market leaders who have earned a decent reputation and can offer really favorable conditions for cooperation.

Account types – Brokers do offer many account types. You should review these to ensure they have an ideal account type for you. They can have raw spreads from 0 pips, mini, leverage, standard, or premium accounts that require a different amount of capital.

The largest global forex broker, IC Markets, had an average daily trading volume of $18.9 billion.

PROP FIRMS

What is a Prop Firm?
A proprietary trading firm (prop firm) is a company that provides traders with capital to trade financial markets, including forex, stocks, commodities, and cryptocurrencies. Instead of using personal funds, traders manage the firm's capital and share in the profits while following specific risk management rules.

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Types of Prop Firms

Challenge-Based Prop Firms

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Traders must complete a trading challenge before getting funded (e.g., FTMO, MyForexFunds, The Funded Trader).

Instant Funding Prop Firms

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Provide traders with immediate funding without a challenge but usually at a higher cost.

Traditional Prop Firms

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Recruit traders as in-house employees and pay salaries alongside profit splits.

Benefits of Trading with a Prop Firm

✔ Access to Larger Capital

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Trade with significantly more capital than you might have personally.

✔ Limited Personal Risk

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Traders only risk the challenge fee, not personal trading funds.

✔ Higher Profit Potential

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Scaling plans allow traders to grow their accounts with consistent performance.

✔ No Liability for Losses

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Unlike personal trading, losses are covered by the firm.

Risks & Considerations

⚠ Strict Rules

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Violating rules (e.g., exceeding drawdown limits) results in losing the funded account.

⚠ Challenge Fees

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Most firms charge a fee for the evaluation process, which is non-refundable if the trader fails.

⚠ Withdrawal Policies

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Some firms have strict payout schedules and conditions for withdrawing profits.

Trading with a prop firm is ideal for skilled traders who have a solid strategy and strong risk management but may lack personal capital. Follow strict adherence to the firm's trading rules.

FOREX HISTORY

The modern foreign exchange market began forming during the 1970s. This followed three decades of government restrictions on foreign exchange transactions under the Bretton Woods system of monetary management, which set out the rules for commercial and financial relations among the world's major industrial states after World War II. Countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed per the Bretton Woods system.

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FOREX TIMELINE 101

Ancient Times to the 17th Century

The concept of foreign exchange dates back to ancient times, when merchants and traders would exchange goods and currencies across borders. The first recorded foreign exchange transaction was in ancient Mesopotamia around 2500 BC. The use of gold and silver as a medium of exchange facilitated international trade, and the concept of currency exchange emerged.

In the 17th century, the Dutch East India Company established the first formal foreign exchange market in Amsterdam, which became a hub for international trade and finance.

The 18th and 19th Centuries

The Gold Standard and the Bretton Woods System

The 18th and 19th centuries saw the establishment of the Gold Standard, where currencies were pegged to the value of gold. This system facilitated international trade and finance, but it also led to the rise of currency fluctuations and exchange rates.

In the early 20th century, the Bretton Woods System was established, which pegged the US dollar to gold and other currencies to the US dollar. This system aimed to stabilize exchange rates and promote international trade.

The 1970s and 1980s

The Floating Exchange Rate and Electronic Trading

The 1970s and 1980s saw the collapse of the Bretton Woods System, leading to the introduction of floating exchange rates. This allowed currencies to fluctuate freely on the foreign exchange market.

The 1980s also saw the emergence of electronic trading systems, which enabled faster and more efficient trading. This led to the development of online trading platforms and the democratization of forex trading.

The 1990s and 2000s

The Rise of Retail Forex Trading

The 1990s and 2000s saw the rise of retail forex trading, with the introduction of online trading platforms and the proliferation of forex brokers. This made it possible for individual traders to access the forex market and trade currencies online.

The Present Day: The Digital Age of Forex

Today, the forex market is a global, decentralized market that operates 24/5. The rise of digital technologies, such as mobile trading apps and social trading platforms, has further democratized forex trading and made it more accessible to a wider audience.

Key Events and Milestones

1971: The US dollar is taken off the gold standard, leading to the collapse of the Bretton Woods System.
1973: The first electronic trading system is introduced, allowing for faster and more efficient trading.
1999: The Euro is introduced, replacing the European Currency Unit (ECU).
2001: The US dollar becomes the most widely traded currency in the world.
2008: The global financial crisis leads to a significant increase in forex trading volumes.
2010s: The rise of mobile trading apps and social trading platforms further democratizes forex trading.

WORLDS RESERVE CURRENCY

Currently, the US Dollar (USD) is the world’s primary reserve currency, holding the largest share of global foreign exchange reserves. The USD has maintained this status since the Bretton Woods Agreement in 1944, when global powers agreed to peg their currencies to the US dollar, which was itself pegged to gold. Although the gold standard was abandoned in 1971, the dollar has remained dominant due to several key factors. A world reserve currency is one that is held in significant quantities by foreign governments and institutions as part of their foreign exchange reserves, used in global trade, and often seen as a benchmark for international finance. The currency most widely used for international trade and held in the largest quantities by central banks and financial institutions worldwide is considered the world’s reserve currency.

The US Dollar continues to be the dominant reserve currency due to the stability and size of the US economy, its highly liquid financial markets, and the trust in the US government’s financial stability. The US Dollar is not only used in trade and investments but also plays a crucial role in the pricing of commodities such as oil, gold, and other essential goods. This extensive use in global trade and finance ensures continued demand for the dollar, helping it maintain its position as the primary reserve currency.

The USD’s global dominance is further supported by the strength of the US economy, the size and liquidity of US financial markets, and the political stability of the United States. Additionally, the Federal Reserve plays a vital role in managing the currency’s value and ensuring confidence in the dollar, while the US’s military and geopolitical influence also contributes to the continued reliance on the USD. As a result, the US Dollar serves not only as a reserve asset but also as a means for countries to store value and mitigate risks in global trade.

While the USD remains the dominant global reserve currency, it faces growing competition from other currencies such as the Euro (EUR), the Chinese Yuan (CNY), and even gold. Some countries have sought to diversify their reserves away from the USD due to factors like political tension, trade wars, and the volatility of the dollar. The rise of digital currencies and initiatives such as central bank digital currencies (CBDCs) may further challenge the dollar’s dominance in the future, though the transition away from the USD will likely be gradual. Despite these challenges, the USD's position as the world’s reserve currency remains deeply entrenched, supported by its liquidity, global acceptance, and the size and strength of the US economy.

FEDERAL RESERVE

The Federal Reserve (Fed) is the central bank of the United States, responsible for managing the country’s monetary policy. It controls interest rates, regulates inflation, and aims to promote stable economic growth and employment. Forex traders closely monitor the Fed because its decisions — especially about interest rates — directly impact the value of the U.S. dollar. When the Fed raises rates, the dollar usually strengthens; when it cuts rates, the dollar often weakens.

Key events like FOMC meetings and speeches by the Fed Chair can cause major market movements.

SEC - Securities Exchange Commission

The SEC (Securities and Exchange Commission) is the U.S. government agency that regulates financial markets, mainly focusing on stocks, bonds, and investment firms. While it doesn’t directly regulate Forex trading, it plays an important role in maintaining market stability and protecting investors. The SEC oversees public companies, enforces rules against fraud, and ensures transparency, all of which influence overall market confidence. It may also get involved in Forex-related services that involve investment contracts or crypto assets. So, while the SEC isn’t a primary Forex regulator, its actions can still indirectly affect the Forex market and related services.

Global Forex Trading Statistics

The United Kingdom is the dominant hub for global forex trading, accounting for 38% of global turnover, followed by the United States with 19%. Singapore ranks third, with its forex turnover increasing from 8% in 2019 to 9% in 2022. Hong Kong SAR holds the fourth position, though its share declined from 8% to 7%. Japan, in fifth place, saw a decrease in turnover from 5% to 4%. Together, these five major financial centres—the UK, US, Hong Kong, Singapore, and Japan—account for 78% of global forex turnover.

As a retail investor, speculating on forex involves a very high risk of losing money due to high leverage and volatile fx markets. According to the financial body of the UK, the Financial Conduct Authority (FCA), about 80% of retail fx traders lose money.

Although 29% of retail investors achieve capital gains, 99% of fx traders fail to make profits for more than 4 continuous quarters.

Together, FX swaps and spots account for the majority of daily turnover in the forex markets. $2.1 trillion worth of spot FX and $3.8 trillion of forex swaps are traded daily.

Other popular assets include:

Forwards: $1.1 trillion
Retail trading
Options and other products: $304 billion
Currency swaps: $123 billion

Financial regulators in the forex industry vary in their level of oversight and investor protection. Top-tier regulators enforce the strictest standards, requiring rigorous licensing, investor protections, fraud prevention measures, and regular audits to ensure market integrity. Mid-tier regulators provide a solid legal framework and oversight but may lack the same level of investor protection and enforcement, making broker research essential.

Offshore regulators generally have more relaxed rules, with oversight varying widely—some offer strong legal frameworks, while others provide minimal investor protections. Traders should carefully assess a broker's regulatory status before opening an account.

OTC (OVER-THE-COUNTER)

The foreign exchange market is where currencies are traded. Its most striking aspect is how it has no central marketplace. Instead, currency trading is done electronically over the counter (OTC). All transactions occur via computer networks among traders worldwide.

CENTRAL BANKS

A central bank manages a nation's monetary system, controlling the money supply, setting interest rates, and ensuring currency stability to promote economic growth and financial security. It regulates inflation, issues currency, supervises commercial banks, and acts as a lender of last resort during times of financial crises. Notable examples include the Federal Reserve in the United States and the Bank of England in the UK, both of which are instrumental in shaping monetary policy, influencing interest rates, and stabilizing their respective economies.

In forex, central banks influence currency values through interest rate decisions, market interventions, and foreign exchange reserves, making their policies crucial for traders monitoring economic trends and market volatility. Their actions directly impact currency movements, shaping the forex market and driving key trends.

BIS - BANK FOR INTERNATIONAL SETTLEMENTS

Bank for International Settlements (BIS)

The majority of the forex trading statistics referenced in this article are sourced from the Bank of International Settlements (BIS) Triennial Central Bank Survey 2022. The survey conducted by BIS is the largest global analysis of financial markets, focusing on OTC derivatives and currency markets.

The Bank for International Settlements (BIS) plays a crucial role in the forex market by promoting global monetary and financial stability. As the central bank for central banks, the BIS facilitates cooperation among national monetary authorities, conducts research on global financial trends, and establishes regulatory frameworks to enhance market transparency and efficiency.

IMF - INTERNATIONAL MONETARY FUND

The International Monetary Fund (IMF) is an international organization established in 1944 with the goal of promoting global financial stability, fostering economic growth, and reducing poverty. It provides financial assistance, policy advice, and technical support to its 190 member countries to help them maintain economic stability and navigate financial crises.

The IMF also conducts economic surveillance, offering guidance on exchange rate policies and monetary frameworks to ensure smooth international trade and investment flows. By influencing macroeconomic policies, managing global liquidity, and fostering confidence in financial markets, the IMF indirectly impacts currency valuations and forex trading dynamics.

WORLD BANK

The World Bank plays a pivotal role in the forex market by fostering economic stability and sustainable development in emerging economies. Through strategic financial assistance, policy advisories, and large-scale infrastructure investments, it enhances economic resilience, bolsters investor confidence, and mitigates financial instability.

By driving long-term growth and stabilizing national economies, the World Bank indirectly influences exchange rate fluctuations, capital flows, and broader forex market dynamics, shaping the global financial landscape.

SWIFT

The Society for Worldwide Interbank Financial Telecommunication. Established in 1973 in Belgium, owned by the banks and other member firms that use its service. SWIFT provides the main messaging network through which international payments are initiated.

It is a crucial component of the global payments system, facilitating international and domestic transactions between banks.

THE STANDARD DRAWING RIGHT

The Standard Drawing Right (SDR) is an international foreign exhange reserve asset created by the International Monetary Fund (IMF). SDRs were created in 1969 to supplement a shortfall of preferred foreign exchange reserve assets, namely Gold and U.S. dollars.

SDR is not a currency, but its value is based on a basket of five currencies the US dollar, the Euro, the Chinese Renminbi, the Japanese Yen, and the British Pound Sterling. It is a supplementary foreign exchange reserve asset, held by IMF member countries for which they may be exchanged.

The SDR was created to address concerns about the limitations of gold and dollars as the sole means of settling international accounts. SDRs provide international liquidity by supplementing the standard reserve currencies and providing a more stable and diversified reserve asset for international transactions.

The ISO 4217 currency code for special drawing rights is XDR and the numeric code is 960.

ISO 4217 is a standard published by the International Organization for Standardization (ISO) that defines alpha codes and numeric codes for the representation of currencies and provides information about currencies and their minor units.

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