What Is Forex Trading? A Beginner's Guide to the FX Market
What Forex Trading Actually Is
Forex — short for foreign exchange, or FX — is the market where one currency is swapped for another. Every time you change pounds into euros for a holiday, you take part in it on a tiny scale. Forex trading is the same exchange carried out with a different aim: you buy a currency you expect to strengthen and sell one you expect to weaken, hoping to profit from the change in the exchange rate.
It is the world’s largest financial market: the Bank for International Settlements’ 2022 Triennial Survey put average daily turnover at around $7.5 trillion. Currencies are always quoted in pairs, such as EUR/USD, because you cannot buy one without selling another. Our guide to how currency pairs work covers this in detail.
Who Trades Forex
Most of that daily volume has nothing to do with private individuals. The main participants are:
- Banks and dealers — large banks quote prices to each other and to clients, forming the core of the market.
- Central banks — they set interest rates and occasionally step in to steady their own currency.
- Companies — importers, exporters and multinationals exchange currency to pay suppliers and bring earnings home.
- Funds and investment managers — pension funds, hedge funds and asset managers move money across borders.
- Retail traders — individuals like you, trading small sizes through an online broker.
Retail traders are a small slice of the whole, dealing at prices the big players set.
A Market With No Central Exchange
Unlike shares, forex has no single exchange building. It is an over-the-counter (OTC) market — a network of banks, brokers and electronic platforms dealing directly with one another. Because that network spans the globe, trading runs 24 hours a day, five days a week, opening on Monday morning in Asia-Pacific (Sunday evening in the UK) and closing on Friday evening in New York.
Activity is not even across the day. It rolls through the Sydney, Tokyo, London and New York sessions and is normally busiest when London and New York overlap, roughly 1pm to 5pm UK time. Prices tend to move more, and trading costs tend to be lower, at those times. The market hours tool shows which sessions are open right now. On TradingView, the browser-based charting platform, you can mark each session on your chart with one of the free session indicators in our Pine Script Library.
How Money Is Made and Lost
Suppose EUR/USD is quoted at 1.1000, meaning one euro costs 1.10 US dollars. If you think the euro will rise, you buy (go long). If you think it will fall, you sell (go short).
The broker earns on every trade whichever way it goes; how forex brokers make money shows each income line.
Price changes are measured in pips. On EUR/USD a pip is 0.0001. Say you buy one mini lot (10,000 euros) at 1.1000 and the price climbs to 1.1050. That is a 50-pip move and, at roughly $1 per pip for a mini lot, you gain about $50. If the price drops to 1.0950 instead, you lose about $50.
Two things tilt the odds against the unprepared. First, every trade has a cost: the spread between the buy and sell price, covered in spreads and pips. Second, brokers offer leverage, which lets you control a large position with a small deposit. Leverage magnifies losses exactly as much as gains, so make sure you understand leverage and margin before placing a live trade.
What Moves Exchange Rates
A currency’s price reflects supply and demand, which shift with how the world views an economy. The main drivers are:
- Interest rates — higher rates tend to attract money into a currency; expectations of cuts tend to weaken it.
- Economic data — inflation, jobs and growth figures change what traders expect central banks to do next.
- Politics and global events — elections, conflicts and trade disputes can spark sharp moves.
- Market mood — in nervous times money often flows to currencies seen as safer, such as the US dollar, Japanese yen and Swiss franc.
Gold, the most traded non-currency market on the same platforms, has its own drivers; start with how to trade gold.
Scheduled releases are published in advance, so learning to read an economic calendar helps you avoid being caught out by a sudden spike.
Sensible First Steps
A steady path looks like this:
- Learn the basics first: pairs, pips, lots, leverage and order types.
- Open a demo account and practise with virtual money until the platform feels familiar.
- Pick one or two major pairs and watch how they behave across different sessions.
- Write down simple rules for when you enter, where you exit and how much you risk per trade.
- If you go live, start with the smallest trade size available.
Forex and CFDs are leveraged products and carry a high risk of losing money quickly; most retail traders lose. Nothing here is financial advice — only ever risk what you can afford to lose.
FAQ
How much money do you need to start trading forex?
Many brokers accept small opening deposits, and micro lots let you trade very small sizes. The more useful question is how much you can afford to lose. Practise on a demo account first, then use only spare money and keep the risk on each trade to a small fraction of your balance.
Can beginners make money from forex trading?
It is possible, but there are no certainties and most retail traders lose money, particularly early on. Results depend on a tested plan, disciplined risk control and realistic expectations rather than predictions or tips. Treat the first months as education, trade small, and judge yourself on following your rules, not on quick gains.
When is the best time to trade forex?
The market is open 24 hours a day from Monday to Friday, but it is most active when the London and New York sessions overlap, roughly 1pm to 5pm UK time. Liquidity is deepest and spreads are usually tightest then. Quiet periods, such as late in the New York evening, often bring wider spreads.