What is Forex Trading?
Forex (Foreign Exchange) trading is the buying and selling of currencies on the global market. It’s the largest financial market in the world, with over $7.5 trillion traded daily.
How Does Forex Trading Work?
Currencies are always traded in pairs. When you buy EUR/USD, you’re buying Euros and selling US Dollars simultaneously. If the Euro strengthens against the Dollar, you profit.
Example: You buy EUR/USD at 1.0800. The price rises to 1.0850. You’ve made 50 pips profit.
Key Concepts
Currency Pairs
- Major Pairs: EUR/USD, GBP/USD, USD/JPY, USD/CHF — most liquid, tightest spreads
- Minor Pairs: EUR/GBP, AUD/NZD — no USD involvement
- Exotic Pairs: USD/TRY, EUR/ZAR — higher spreads, more volatile
Pips
A pip is the smallest price movement in a currency pair. For most pairs, 1 pip = 0.0001 (the fourth decimal place).
Lots
- Standard Lot: 100,000 units of base currency
- Mini Lot: 10,000 units
- Micro Lot: 1,000 units
Leverage
Forex brokers offer leverage, allowing you to control large positions with small capital. For example, 1:100 leverage means $1,000 controls $100,000.
Warning: Leverage amplifies both profits AND losses. Use it responsibly.
Spread
The difference between the buy (ask) and sell (bid) price. This is effectively the cost of trading. Lower spreads = lower costs.
Getting Started
- Learn the basics — understand how currencies move and what drives them
- Choose a regulated broker — look for regulation, competitive spreads, and reliable execution
- Practice on a demo account — trade with virtual money until consistently profitable
- Start small — begin with micro lots and conservative risk management
- Never risk more than 1-2% per trade — protect your capital above all else
What Moves Currency Prices?
- Interest rates — higher rates typically strengthen a currency
- Economic data — GDP, employment, inflation reports
- Geopolitical events — elections, trade wars, conflicts
- Market sentiment — risk-on vs risk-off environments
Trading Sessions
The forex market operates 24 hours, 5 days a week across three major sessions:
- Asian Session (Tokyo): 00:00 - 09:00 GMT
- European Session (London): 07:00 - 16:00 GMT
- American Session (New York): 12:00 - 21:00 GMT
The most active periods are when sessions overlap, especially London-New York (12:00-16:00 GMT).
This article is for educational purposes only and does not constitute financial advice. Trading forex carries significant risk. Never trade with money you cannot afford to lose.