Foreign exchange—often called forex—is the process of buying one currency while selling another at the same time. Traders aim to make money by predicting how exchange rates will change. While forex can offer opportunities, it’s also complex, fast-moving, and risky.
The forex market is the largest and most liquid financial market in the world. It operates 24 hours a day and involves currencies from all over the globe. Traders speculate on how one currency will perform against another.
Exchange rates are influenced by many factors, including:
Political events
Economic news
Interest rate changes
Global trade and market trends
Because these factors can shift quickly, forex prices can rise or fall in seconds.
Forex trading attracts people who are looking for fast-paced investment opportunities and global exposure. It’s especially popular with experienced investors who want to:
Trade around the clock: The forex market is open 24 hours a day, five days a week.
Access global currencies: Investors can trade major currencies like the U.S. dollar, euro, yen, and more.
Use leverage to increase potential returns: Traders can borrow money to make larger trades, hoping to earn more profit.
Forex trading is not like buying stocks or mutual funds. It’s a zero-sum game, which means one trader’s gain is another’s loss. Even skilled investors can lose money if the market moves against them.
Many forex trades involve borrowing money to invest, called leveraging. Leveraging only works when the rate of return is higher than the interest rate on the debt, and it can be very risky because you may be required to put up more capital if exchange rates don’t move the way you expect them to.
Forex trading is regulated as either securities or derivatives, depending on provincial laws. In Canada, anyone offering forex trading services must:
Be registered in the province where they operate. Check the National Registration Search
Be a member of the Canadian Investment Regulatory Organization (CIRO)
Before investing, always check if the firm or individual is registered by visiting FCNB.ca/check-now.
Forex trading is fast-paced and can be unpredictable. Here are some risks to keep in mind:
Market volatility: Currency values can change quickly due to global events, making it hard to predict outcomes.
Leverage risk: Borrowing money to trade can lead to bigger losses if the market moves against you.
Complex strategies: Forex trading often involves advanced techniques that may be difficult to understand.
Zero-sum transaction: For every winner in forex, there’s a loser. You could lose money even if you’ve done your research.
Regulatory differences: Rules for forex trading vary by province. Make sure you understand the regulations where you live.
Fraud risk: Some unregistered firms may offer forex trading illegally. Always verify registration before investing.
Understand the market: Learn how forex works and what affects currency prices.
Know your risk tolerance: Are you comfortable with fast-moving markets and potential losses?
Verify registration: Use aretheyregistered.ca to confirm the firm or individual is authorized to offer forex services.
Get expert advice: Talk to a financial advisor before making any forex investments.