Currency pairs
Currencies are quoted in pairs, e.g. EUR/USD. The first currency is the base, the second is the quote. A price of 1.0850 means one euro buys 1.0850 US dollars.
Forex Basics · Updated April 2026
What is forex trading? A plain-English guide for new traders.
Forex (FX) trading is the exchange of one currency for another in pairs, with the goal of profiting from price movement. This guide explains how the market works, how prices are quoted, what leverage really does to your account, and the realistic risks that every retail trader should understand before depositing.
Beginner-friendly
No income claims
Risk explained first
The fundamentals
Forex trading, defined without marketing fluff.
Forex (foreign exchange) is the global decentralised market where currencies are exchanged. Retail traders typically access it through CFD or spot-style products offered by a broker, using leverage to control a position larger than their deposit.
Pips and lots
A pip is usually the fourth decimal of a quote (0.0001) — the standard unit of price movement. A standard lot is 100,000 units; mini is 10,000 and micro is 1,000.
Bid, ask and spread
The bid is what buyers offer; the ask is what sellers want. The difference is the spread — the visible cost of opening a position before any commission.
Leverage and margin
Leverage lets you control a larger position with a small deposit (margin). At 1:100, $100 controls $10,000 of currency. A 1% adverse move wipes the deposit.
Long and short
Going long means you expect the base currency to rise. Going short means you expect it to fall. CFD-style forex lets you take both directions.
Stop-loss and take-profit
Risk-management orders automatically close a position at a chosen price. They are not bulletproof — gaps, slippage and market closures can move price past your level.
How a forex trade actually works
From quote to closed position — step by step.
A simple long EUR/USD trade illustrates the moving parts. The same logic applies to short trades and to other pairs.
You see a quote
Your broker shows EUR/USD at 1.0850 / 1.0851. The 1-pip spread is the immediate cost of crossing the bid-ask. Spreads widen during news or low-liquidity hours.
You decide direction and size
You believe EUR/USD will rise. You buy 0.10 lots (10,000 units). At 1:30 leverage, the required margin is roughly $361. The notional position is far larger than your margin.
You set risk before entry
You place a stop-loss at 1.0820 (30 pips) and a take-profit at 1.0910 (60 pips). Your defined risk is roughly $30; your defined target is roughly $60 — a 1:2 risk-to-reward ratio.
The market moves
If price reaches 1.0910 you take profit. If it reaches 1.0820 you take a loss. If it drifts and you hold overnight, swap (rollover) interest applies based on the rate differential between EUR and USD.
You close, review, learn
Outcome aside, the trade is logged: setup, plan, execution, slippage, emotion. Real edge in retail forex comes from process improvement, not from one good entry.
Pair categories
Majors, minors and exotics — what's the difference?
Currency pairs are commonly grouped by liquidity. The category affects spreads, volatility and how predictable price action tends to be.
| Category | Examples | Typical spread | Liquidity |
|---|---|---|---|
| Majors | EUR/USD, GBP/USD, USD/JPY, USD/CHF | Tight | Very high |
| Commodity majors | AUD/USD, USD/CAD, NZD/USD | Tight to moderate | High |
| Minors / crosses | EUR/GBP, EUR/JPY, GBP/JPY | Moderate | Medium-high |
| Exotics | USD/TRY, USD/ZAR, USD/MXN | Wide | Lower / volatile |
Spreads and liquidity vary by broker, time of day and market conditions. The figures above are illustrative classifications, not live quotes.
Market sessions
Why FX is "open 24 hours" — and why that matters.
The forex market follows the sun: as one financial centre closes, another opens. The four main sessions are Sydney, Tokyo, London and New York. Volatility, liquidity and typical pair behaviour differ between sessions.
Beginners often trade at random hours and wonder why their results vary so much. The session you trade is part of your strategy, not a coincidence.
Sydney session
The week opens here. Lower liquidity, slower moves. AUD and NZD pairs see the most attention.
Tokyo session
JPY pairs become active. News from Asia drives early-day positioning. Spreads can widen on lower-volume crosses.
London session
The largest FX session by volume. Volatility expands. EUR and GBP pairs see the most movement.
New York session
USD-driven flows dominate. Overlap with London is the most liquid window of the day. US data releases drive bursts of volatility.
Honest risk picture
Why most retail forex traders lose money.
Regulators in the EU, UK and Australia routinely disclose that a high percentage of retail CFD accounts lose money over time. The figure varies by broker and period but is consistently the majority. This is not a marketing detail — it is the single most important number in retail forex.
Why traders survive longer
- Conservative position sizes (often 0.25–1% account risk per trade).
- Defined stop-loss before entry — every time.
- Trading a strategy with documented expectancy on demo first.
- Reasonable leverage (lower is almost always safer for beginners).
- Trading specific sessions, not "all day".
Why accounts blow up fast
- Maximum leverage on every trade.
- No stop-loss, "averaging down" into losses.
- Trading news headlines without a strategy.
- Copy-trading or signal services with no transparency.
- Over-trading after a winning streak.
Forex Trading Point does not publish trade signals, copy-trading or "guaranteed strategy" promotions. None of those replace risk management.
FAQ
Common questions about forex trading
What is forex trading in simple terms?
Forex trading is the act of buying one currency while simultaneously selling another in pairs such as EUR/USD or GBP/JPY. Traders aim to profit from changes in the exchange rate. Most retail forex is traded as a leveraged contract, which can amplify both gains and losses.
How do beginners start forex trading?
Beginners typically start by learning the basics — pairs, pips, lots, leverage, margin and risk — then practising on a demo account before considering a small live account with a regulated broker. Focus on education and conservative position sizing rather than chasing fast returns.
Is forex trading risky?
Yes. Forex and CFD trading involves significant risk of loss. Leverage can amplify losses as well as gains, and a high percentage of retail traders lose money over time. Only trade with funds you can afford to lose and consider seeking independent advice if in doubt.
How much money do I need to start forex trading?
There is no universally correct minimum, but many brokers offer Micro-style accounts that allow small starting balances. The amount you deposit should be money you can afford to lose entirely. Position size matters more than initial deposit — large lots on a small account is one of the fastest ways for new traders to blow up.
Is forex trading legal in my country?
Retail forex and CFD trading is legal in many countries, but products, leverage caps and broker availability differ by jurisdiction. Always confirm that your broker is authorised to serve clients in your country and that the account terms comply with local regulation.
What is the difference between forex and stock trading?
Stocks represent ownership in a company; forex is the relative value of one currency against another. Forex markets run roughly 24 hours on weekdays, are typically traded with leverage, and react primarily to macro factors such as interest rates, inflation and political events.
Next step
Understand the market first, then choose a broker.
If forex still makes sense for your goals after reading this, the next research step is choosing a broker that matches your jurisdiction and trading style. Our XM account guide walks through that decision honestly.
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