Every time you travel abroad and exchange money, you're doing forex. The forex market is just this — but at a massive scale, where banks, companies, and traders swap currencies to profit from price changes.
Forex is the largest financial market in the world — over $7.5 trillion traded every single day. It dwarfs the stock market. It runs 24 hours a day, 5 days a week across global financial centres.
You buy a currency when you think it will rise in value, and sell it when you think it will fall. The difference between your entry and exit price is your profit or loss.
Example: You buy EUR/USD at 1.0800. The price rises to 1.0850. You close the trade. You made 50 pips profit.
Central banks · Commercial banks · Hedge funds · Multinational corporations · Individual retail traders (that's you!)
In forex, you always trade one currency against another. The first is the base currency, the second is the quote currency.
These are illustrative prices for educational purposes.
EUR/USD = 1.0842 means: 1 Euro buys 1.0842 US Dollars.
Majors — Most traded, lowest spreads. Always include USD (EUR/USD, GBP/USD,
USD/JPY).
Minors — Don't include USD but use major currencies (EUR/GBP, EUR/JPY).
Exotics — One major + emerging market currency. Higher risk, wider spreads (USD/TRY,
EUR/ZAR).
A pip (Percentage In Point) is the smallest standard price move in a currency pair. For most pairs, it's the 4th decimal place.
So 1.0842 → 1.0843 = moved 1 pip. For USD/JPY, the pip is the 2nd decimal place (e.g. 153.44 → 153.45).
The spread is the difference between the Bid (sell price) and Ask (buy price). This is the broker's fee — you enter at a small disadvantage.
Tighter spread = cheaper to trade. Majors like EUR/USD typically have very tight spreads (1–2 pips). Exotics can be 20–50 pips wide.
On a standard lot (100,000 units), 1 pip = ~$10. On a mini lot (10,000 units), 1 pip = ~$1. On a micro lot (1,000 units), 1 pip = ~$0.10. Beginners should always start with micro lots.
Leverage lets you control a large position with a small deposit (margin). It magnifies both profits and losses.
With 1:100 leverage: A 1% market move in
your favour =
100% return on margin.
But also: A 1% market move against you =
100% loss of
margin. Your account can be wiped in minutes.
Start with 1:10 leverage or lower. Many regulators now cap retail leverage at 1:30 for major pairs. Never risk more than 1–2% of your account on a single trade.
The market runs across four global sessions. Each has its own character and best pairs to trade.
← Sydney open New York close →
The 1pm–5pm GMT window (when London and New York are both open) is the most active period of the entire trading week. Spreads are tightest and price moves are largest. Most professional traders focus on this window.
Studies show 70–80% of retail forex traders lose money. This doesn't mean you can't succeed — but it means you must treat this as a skill that takes years to develop, not a quick money scheme.