What Is Forex Trading? A Complete Beginner's Guide
What is forex trading? A plain-English guide to how the currency market works, who trades it, how gains and losses happen and how to start safely.
You have probably seen the adverts: trade currencies from your phone, 24 hours a day, with a small deposit.
Quick answer: Forex trading is buying one currency while selling another, hoping the exchange rate moves in your favour. Prices are quoted in pairs such as EUR/USD. Retail traders trade through a broker, usually with leverage, which magnifies both gains and losses. It is a skill, and most beginners lose money while learning it.
What is forex trading, in plain English?
Forex is short for foreign exchange, and you will also see it written as FX. It is the global market where one currency is swapped for another. When you change pounds into euros at the airport, you are taking part in it. When a car maker in Germany pays a supplier in Japan, it is taking part in it too. Forex trading is doing the same thing deliberately, to profit from changes in the exchange rate rather than to spend the currency.
Because you are always swapping one currency for another, forex prices come in pairs. The price EUR/USD 1.0850 means one euro costs 1.0850 US dollars. The first currency is the base currency and the second is the quote currency. Tap through the parts of a real quote below.
EUR is the base currency: the one you are buying or selling. The price is always for one unit of it.
Every forex price is a pair: one unit of the base currency (EUR) priced in the quote currency (USD), with a bid and an ask either side of the spread.
If you think the euro will strengthen against the dollar, you buy EUR/USD. If you think it will weaken, you sell it. Selling something you do not own sounds odd, but in forex it is completely normal: selling EUR/USD means selling euros and receiving dollars, which you can reverse later.
The idea is the same one you already use when you notice that your holiday money buys more one year than the last. Traders act on those changes, in larger amounts and much more often. Our lesson on currency pairs and quotes goes through reading any pair in detail.
Who trades forex, and why?
Forex is the largest financial market in the world. According to the Bank for International Settlements, global currency trading averaged about $9.6 trillion a day in April 2025, up from $7.5 trillion three years earlier (BIS Triennial Survey). For comparison, that is many times the daily value traded on all the world’s stock exchanges combined.
Most of that volume has nothing to do with people like us. The market is layered, and each layer trades for a different reason:
- Large banks trade with each other on the interbank market, for their clients and for themselves. They set the prices everyone else sees.
- Central banks manage their country’s reserves and occasionally intervene to steady their currency.
- Funds and institutions, including pension funds, hedge funds and asset managers, buy currencies to invest abroad or to bet on rates.
- Companies convert revenue earned abroad and pay foreign suppliers. For them, currency risk is a cost of doing business.
- Retail traders, individuals with an account at a broker, speculate on price changes. They are a small slice of total volume.
The prices you trade on are shaped by institutions with research teams, information and patience. Your job as a beginner is to manage your own risk well enough that a reasonable method has time to work. That idea runs through every course in our Academy.
How does forex trading work?
As a retail trader you never reach the interbank market directly. You open an account with a broker, deposit money, and place orders on the broker’s trading platform. The broker either passes your order on to large banks, called liquidity providers, or fills it itself. Tap between the two models below.
How your order reaches the market. Some brokers pass it straight through to liquidity providers; others, called market makers, fill it from their own book.
Every price comes with two numbers. The bid is what the broker pays when you sell; the ask is what it charges when you buy. The gap between them is the spread, and it is the main way most brokers are paid. You pay it the moment a trade opens, which is why a new trade always starts very slightly in the red.
From there the life of a trade is simple. You open a position, the price moves, and you close it. Your result is the difference between the price you bought at and the price you sold at, multiplied by the size of your position.
Most retail forex is traded as a CFD or a rolling spot contract, which means you never take delivery of actual euros or dollars. You are trading the price change only. That makes it convenient, but it also means you are entirely dependent on your broker being honest and well regulated, which is why choosing one carefully matters so much (see how to choose a forex broker). The lesson on how brokers work covers the costs and the two broker models in more depth.
When is the forex market open?
Unlike a stock exchange, forex has no single building and no opening bell. It runs 24 hours a day, five days a week, passing from one financial centre to the next as the working day moves around the world: Sydney, then Tokyo, then London, then New York. The clock below shows which sessions are open right now, in your own time zone.
Open now: …
The four main forex sessions in your local time. The London–New York overlap, marked on the outer ring, is usually the most active part of the day.
Being open all day does not mean being equally busy all day. Activity, and therefore liquidity, peaks when two big centres overlap. The London–New York overlap, roughly mid-afternoon in London, is usually the busiest window, with the tightest spreads and the cleanest moves. The quiet hours after New York closes tend to have wider spreads and more aimless price action.
For a beginner, the practical lessons are these. Pick hours you can actually be present for, rather than trading whenever you happen to be awake. Match your pairs to the session: yen pairs move in Tokyo hours, euro and pound pairs in London. And avoid the moments just before and after major economic releases until you understand what they do. Our full guide to forex market hours and the Academy lesson on market sessions go further.
How do traders make or lose money in forex?
Forex moves are measured in pips. A pip is the fourth decimal place for most pairs, so a move from 1.0850 to 1.0875 is 25 pips. For pairs quoted in Japanese yen, a pip is the second decimal place instead. Trade size is measured in lots: a standard lot is 100,000 units of the base currency, a mini lot 10,000 and a micro lot 1,000.
Put the two together and you get money. On a standard lot of EUR/USD, each pip is worth about $10; on a mini lot, $1; on a micro lot, 10 cents. Try different prices in the counter below and watch how the same move is worth very different amounts depending on size.
The highlighted digit is the pip. For USD/JPY the pip is the second decimal and its dollar value depends on the price.
The third ingredient is leverage. Brokers let you control a position much larger than your deposit, by setting aside only a fraction of it as margin. With 1:30 leverage, $1,000 of margin controls $30,000 of currency. That is what makes forex accessible with small accounts, and it is also what makes it dangerous.
Margin locked up Loss from a 50-pip move against you
Leverage changes how much margin is locked up, but the loss from a 50-pip move depends only on your position size. The account does not care how much leverage was available; it cares how big the trade you actually opened was. Our guide to leverage in forex explains that distinction fully. Our guide to what a pip is covers the arithmetic in more detail.
How forex compares with stocks and crypto
People often come to forex after trying, or reading about, shares or cryptocurrency. The three markets look similar on a chart, but they behave very differently, and the differences affect how you should trade them.
| Forex | Stocks | Crypto | |
|---|---|---|---|
| Opening hours | 24 hours, 5 days a week | Exchange hours only | 24 hours, 7 days a week |
| Daily volume | Largest market in the world | Large, spread across thousands of shares | Much smaller |
| Number of instruments | A few dozen pairs matter | Thousands of companies | Thousands of coins |
| Typical retail leverage | Up to 1:30 on majors (UK, EU, Australia) | Usually 1:5 or none | Often restricted or banned for retail |
| What moves price | Interest rates, economic data, risk mood | Company earnings and news | Sentiment, adoption, regulation news |
| Main retail cost | Spread (and swap overnight) | Commission and spread | Spread and fees, often wide |
Two differences matter most to a beginner. First, focus. In stocks you can spend years learning about individual companies. In forex, a handful of major pairs account for most of the volume, and the same few forces move all of them: interest rates, inflation, growth and the market’s mood. That makes forex easier to narrow down, which suits someone learning part time.
Second, leverage. Forex is traded with far more leverage than shares as standard, and that is the main reason it is riskier for newcomers. A 1% move in a share bought with your own money is a 1% gain or loss. A 1% move in a currency pair traded at 1:30 leverage, with all available margin used, is a 30% gain or loss on the money committed.
Neither market is “better”. They suit different temperaments and different amounts of time. If you are drawn to forex because it is open all day and needs only a small deposit, those are the very features that make discipline more important, not less.
The risks most beginners underestimate
When the European Securities and Markets Authority introduced limits on retail leverage in 2018, it cited evidence that between 74% and 89% of retail accounts trading these products lose money (ESMA). Regulated brokers in the UK and EU still have to publish a similar figure on their own websites today.
Common causes include a short list of avoidable habits: positions that are far too large for the account, no stop loss, adding to losing trades, and trading emotionally after a loss.
Decide in advance how much of your account you are willing to lose on any one trade, and keep that number small. We suggest 1 to 2%. The chart below shows why: try ten losing trades in a row at different risk levels.
For comparison: at 1% you keep 90%, at 5% you keep 60%, at 10% you keep 35%.
Ten losing trades in a row at the chosen risk per trade. At 1% the account barely notices; at 10% it would need to nearly triple to recover.
Ten losses in a row sounds unlikely, but for any method that wins around 40–50% of the time it is close to certain over a few hundred trades. Small risk per trade does not make you profitable on its own. What it does is keep you in the game long enough to find out whether your method works. The Risk & Money Management course is built around this one idea, and the psychological side is covered in our guide to trading psychology.
There are other risks worth naming. Prices can gap over weekends or on major news, skipping straight past a stop loss. Brokers can be poorly regulated or simply dishonest. And the round-the-clock nature of the market makes it easy to trade too often, especially out of boredom.
How to start learning forex trading, step by step
If you have read this far, you already know more than many people who open an account. The path from here is not complicated, but it does take time, and the order matters.
1. Learn the basics. Pairs, pips, lots, leverage, order types and sessions. Our free Forex Foundations course covers all of them in ten short lessons with interactive examples.
2. Practise on a demo account. A demo uses virtual money on a real platform with live prices. Use it to learn the buttons, place every order type, and make your first mistakes for free. Set the demo balance to the amount you would actually deposit, not $100,000, and treat it as real. The lesson on your first demo trade walks you through one from start to finish.
3. Write a trading plan. One page: which pairs you trade, when, how much you risk per trade, what a valid setup looks like, and where your stop and target go. If a rule cannot be written down, it is not a rule.
4. Go live with very small risk. When you move to real money, keep risk per trade at 1% or less, and consider a small first deposit. Live trading feels different from demo trading, and the only way to learn that difference is cheaply.
5. Review every trade. A short journal entry for each trade (why you entered, what happened, whether you followed the plan) turns experience into evidence. Our guide to keeping a trading journal shows a two-minute format.
Before any of this, choose a broker that is regulated by a serious authority, and check its licence on the regulator’s own register rather than trusting its website. In the UK, that is the FCA register.
Common mistakes new forex traders make
Opening positions that are far too large
Oversized positions empty small accounts fast. A standard lot on a $1,000 account means a normal 50-pip move is a $500 swing. Size every trade from your stop loss and a fixed risk percentage instead.
Trading without a stop loss
“I’ll watch it” works until you are asleep, at work, or watching a news spike happen faster than you can react. A stop loss costs nothing to place and is the only order that limits a loss when you are not there.
Treating leverage as a target
High available leverage is not a reason to use it. Regulators in the UK, EU and Australia cap retail leverage on major pairs at 1:30 precisely because high leverage, used fully, is one of the fastest routes to a blown account.
Skipping the demo stage, or treating it as a game
Going straight to real money means paying to learn the platform. Equally, trading a demo with enormous positions and no stops teaches the wrong habits. Practise exactly as you intend to trade for real.
Choosing a broker by its bonus
Deposit bonuses and very high leverage are usually signs of weak regulation, not generosity. Check the licence first; everything else comes after.
Frequently asked questions
What is forex trading in simple terms?
Forex trading is exchanging one currency for another to profit from changes in the exchange rate. You buy a currency pair if you expect the first currency to strengthen against the second, and sell it if you expect it to weaken. Retail traders do this through a broker, usually with leverage.
Is forex trading legal?
Yes, in most countries, provided you trade with a broker licensed by your country's regulator, such as the FCA in the UK or ASIC in Australia. Some countries restrict retail forex or leverage. Trading through an unregulated offshore broker is legal in many places but leaves you with little protection.
How much money do I need to start forex trading?
You can open many accounts with a few hundred dollars, but a small account limits how carefully you can size trades. More important than the amount is that it is money you can afford to lose entirely, and that you risk only a small percentage of it on each trade.
Can you make money trading forex?
Some people do, but most retail traders lose money, according to the risk disclosures regulated brokers must publish. Consistent results come from risk management, a tested method and discipline over hundreds of trades, not from predictions or tips. Treat it as a skill to learn slowly.
Is forex trading the same as gambling?
It can be, if you trade without a plan, oversize positions and rely on hunches. With a defined method, small risk per trade and a record of results, it becomes a skill that can be measured and improved. The difference lies in how you trade, not in the market itself.
What is the best way to learn forex trading?
Learn the basics first, then practise on a demo account, write a trading plan, and only then trade small amounts of real money while keeping a journal. Our free Academy courses follow exactly that order, with interactive examples at every step.
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