The foreign exchange (forex) market is where currencies are bought and sold. It is the largest financial market in the world, with trillions of dollars traded every day. This guide explains the basics in plain English.
Currency pairs
Currencies are always traded in pairs, such as EURUSD. The first currency is the base and the second is the quote. If EURUSD is 1.0800, one euro costs 1.08 US dollars.
- Majors — pairs with the US dollar and another major currency: EURUSD, GBPUSD, USDJPY, USDCHF, AUDUSD, USDCAD, NZDUSD.
- Minors — major currencies without the dollar, such as EURGBP or GBPJPY.
- Exotics — a major currency against an emerging-market one, such as USDTRY or USDZAR.
Buying and selling
If you think the base currency will rise, you buy (go long). If you think it will fall, you sell (go short). Your profit or loss is the price difference multiplied by your position size.
Pips and lots
- A pip is the standard unit of price movement — 0.0001 for most pairs (0.01 for JPY pairs).
- A standard lot is 100,000 units of the base currency, a mini lot 10,000 and a micro lot 1,000.
- On EURUSD, one standard lot is worth about $10 per pip and one micro lot about $0.10 per pip.
Trading sessions
Forex trades 24 hours a day, five days a week, across the Sydney, Tokyo, London and New York sessions. The London–New York overlap is usually the most active period.
How traders make and lose money
Retail traders usually trade CFDs through a broker, using leverage. Leverage magnifies both gains and losses, which is why regulators require brokers to warn that most retail accounts lose money. Consistent traders focus on risk management first and profits second.
How to get started
- Learn the basics and read our risk management guide.
- Choose a regulated broker that accepts your country — see brokers by country.
- Practise on a demo account for at least a few weeks.
- Start live with a small amount and small position sizes.
- Keep a trading journal and review it every week.
