What is forex?
Forex (short for foreign exchange) is the market where one currency is bought while another is sold at the same moment. Trading a pair like EUR/USD means buying the euro and selling the dollar if you expect the euro to rise — and the reverse if you expect it to fall. There is no single central venue; forex is a decentralised global network of banks, institutions, and individuals.
Daily forex turnover is the largest of any financial market, giving it deep liquidity that makes entering and exiting the major pairs fast. Learn more about currency pairs.
How the forex market works
Forex runs 24 hours a day, five days a week, as trading sessions hand off around the globe (Asia, Europe, the Americas). Prices move on supply and demand driven by interest rates, economic data, and geopolitical events. You trade through a broker that provides a platform (such as MetaTrader 5) and two prices — buy and sell — separated by the spread.
Currency pairs and prices
Currencies trade in pairs grouped into: majors (which include the US dollar, e.g. EUR/USD), minors/crosses (no dollar, e.g. EUR/GBP), and exotics (a major currency paired with an emerging-market one). Price movement is measured in pips, and your trade size in lots. See the breakdown of major, minor and exotic pairs.
Leverage and margin
Leverage lets you control a position larger than your balance for a small deposit called margin. It is double-edged: it magnifies gains and losses by the same ratio. Disciplined use of leverage — paired with a stop-loss and a calculated position size — is what separates traders who last from those who don't.
How to start trading forex
- Learn the basics and terminology (pip, lot, leverage, spread).
- Choose a licensed broker that supports MetaTrader 5.
- Practise on a demo account until execution is second nature.
- Start with a small live account, risking 1–2% per trade with a permanent stop-loss.
- Journal your trades and review them to improve.
How profit and loss are calculated (worked example)
Price movement is measured in pips, whose cash value depends on lot size. On a pair like EUR/USD a pip is normally 0.0001.
Example: you buy 0.10 lots of EUR/USD at 1.1000 and close at 1.1050 — a 50-pip move in your favour. On a standard lot (100,000 units) a pip is worth roughly $10, so on 0.10 lots it is about $1:
50 pips × $1 per pip = $50 profit (before costs)
Had price moved 50 pips against you, the loss would be $50. That symmetry is exactly why risk management sits at the centre of the craft: lot size sets both your gain and your loss.
The costs of forex trading
Your net result is whatever survives costs, chiefly:
- Spread: the gap between buy and sell prices, paid on every trade — see bid, ask and spread.
- Commission: charged by some brokers on tight-spread account types.
- Swap fees: on positions carried overnight; they can be negative or positive.
- Slippage: the gap between requested and filled price, which widens around news.
Exotic pairs typically cost more in spread than majors — another reason beginners are steered toward the majors.
Technical and fundamental analysis
Two complementary schools of reading the market:
| School | Answers | Tools |
|---|---|---|
| Fundamental | Why is price moving? | Rates, inflation, data |
| Technical | When do I enter and exit? | Levels, indicators, patterns |
Many traders use the fundamental view to set a broad bias (what moves currency prices) and the technical view for timing. Combining them beats relying on either alone.
Trading styles: which one fits the time you have?
There is no "best" style; there is a style that fits your available time, capital and temperament. The common error is adopting a style seen working for someone else, then discovering you lack the time to execute it:
| Style | Trade duration | Daily time required | Cost sensitivity |
|---|---|---|---|
| Scalping | Minutes | Continuous screen hours | Extreme — spread consumes much of the target |
| Day trading | Hours, closed same day | 2–4 hours | Moderate |
| Swing trading | Days to weeks | A short daily review | Low, but swap becomes material |
| Position trading | Weeks to months | A weekly review | Swap is the main cost |
The practical rule the table encodes: the shorter your pip target, the larger the share of it you hand to your broker. A 5-pip target against a 1.5-pip spread means giving up 30% of the potential gain before you start, while a 200-pip target makes that under 1%. The numbers are worked through in spread cost.
A learning roadmap: what to read, in what order
Forex is a wide field, and jumping between topics at random is what slows learning most. This order builds each step on the one before it:
| Stage | What you learn | Page |
|---|---|---|
| 1. Foundation | Reading a quote and understanding the pair | Currency pairs |
| 2. Structure | Who moves the market and when it is active | How the market works |
| 3. Cost | What each trade costs you | The spread |
| 4. Size | Leverage, margin and lot calculation | Leverage and margin |
| 5. Execution | The trade from start to finish | Trading step by step |
| 6. Protection | The numbers of risk management | Forex risk management |
Note that strategy comes last, not first. Most beginners start from "what is the best strategy?" before knowing what their trade costs or how to size it — which explains why good strategies fail in their hands. When you reach the selection stage, start with choosing and testing a strategy.
The risks of forex trading
Forex is high-risk: leverage can erode capital quickly, and volatility around news can cause slippage. The large majority of retail traders lose over the long run, mostly due to weak risk management and emotion. Never trade money you need, and make risk management the backbone of your plan. Past performance does not guarantee future results.