Forex: What is it and How Do You Trade It?

Forex. FX. The foreign exchange market. Whatever you call it, it’s the biggest and most active financial market in the world—trading over $7.5 trillion every single day. That’s way more than the stock market, and the best part? It runs 24 hours a day, five days a week, meaning more opportunities can come your way.

With the Federal Reserve’s latest interest rate decision now behind us, traders are watching how it affects the US dollar and, in turn, the entire FX market. But how does Forex actually work? And how do traders make money from it? Let’s break it down.

1. What is Forex and Why Should You Care?

Forex is where currencies are bought and sold, and it’s a market that pretty much runs the world. Every time you travel internationally, buy something from overseas, or invest in global markets, Forex is working in the background.

Unlike stocks, Forex doesn’t have a single exchange market (like the JSE). Instead, banks, corporations, and traders operate in a decentralized over-the-counter (OTC) system, which means no single institution controls the market.

Physical OTC markets exist for FX, like a Bureau de Change at the airport, or some local banks who hold foreign currencies.

Here’s what makes Forex unique:

Massive liquidity – Since trillions of dollars flow through it daily, you can buy or sell currencies anytime without major price swings.

24/5 market – Unlike the stock market, Forex follows the sun: Sydney opens, then Tokyo, then London, and finally New York before it all starts again.

Currency pairs – You’re always trading one currency against another, like EUR/USD (Euro vs. US Dollar) or USD/ZAR (US Dollar vs. South African Rand).

It’s a huge market that never sleeps, and big economic events—like Wednesday’s Fed decision—can shake things up in a big way.

2. How Does Forex Trading Actually Work?

Alright, so Forex trading is all about pairs—you can’t buy a currency without selling another.

For example, if you’re trading USD/ZAR, you’re basically betting on whether the US dollar (USD) will get stronger or weaker against the South African rand (ZAR). If USD/ZAR is at 18.50, that means 1 USD = 18.50 ZAR. If it moves up to 19.00, the dollar has strengthened against the rand. If it drops to 18.00, the rand has gained value.

There are three main ways to trade Forex:

Spot Market (OTC): This is real-time trading—currencies are exchanged instantly at current market prices.

Futures & Forwards: Traders agree to swap currencies at a set price in the future.

Physical Exchanges: Bureau de Change to trade hard cash, commonly found at airports before you go travelling.

Because the market never stops, traders react in real time to news, interest rate decisions, and economic reports. And that’s where things get interesting.

3. How Do You Make Money Trading Forex?

Making money in Forex is similar to trading stocks, its trying to consistently predict where prices are headed next. Here’s how traders try to get ahead:
Technical Analysis: Reading the Charts

Just as discussed in previous weeks, traders love their charts. They use indicators like moving averages, trend lines, and RSI (Relative Strength Index) to spot patterns and trends. If USD/ZAR keeps bouncing off a certain price level, traders might buy when it hits that level again, expecting it to rise.

Fundamental Analysis: Watching the News

Sometimes, big economic events shake up the market. Traders keep an eye on:

Interest rates – If the Fed hikes rates, the US dollar usually strengthens. If they cut rates, the dollar weakens.

Inflation & GDP growth – A strong economy usually means a strong currency.

Geopolitical events – Wars, elections, trade disputes—these can send currencies soaring or crashing.

Carry Trade: The Interest Rate Hack

This is an advanced strategy but super powerful. A carry trade is when you borrow money in a low-interest-rate currency and invest in a higher-yielding one.

Example: If the US Fed keeps rates low but the South African Reserve Bank offers high rates, a trader could borrow USD (cheap money) and buy ZAR (higher returns). They make money on the interest rate difference, plus any gains from the exchange rate. But if the market turns against them? That’s where risk management comes in.

Forex trading is a fast, high-energy market where opportunities pop up every second. But it’s also a place where beginners can get burned fast if they don’t understand how it works. Whether you’re trading based on charts, economic news, or interest rates, knowing the risks and having a solid strategy is key.

With the Fed decision shaking up the market, now’s a great time to watch how currencies react—and maybe even test the waters yourself. Just remember: Forex, just like all other markets, isn’t about guessing—it’s about strategy.

If you’re interested in following along, and learning to trade forex and CFDs, then you may want to join my Pattern Profit Alerts community. You can join for 90 days risk-free here.