Forex trading, short for foreign exchange trading, is the global act of buying and selling currencies to profit from changes in exchange rates. As the largest and most liquid financial market in the world, forex trading involves participants ranging from multinational banks and governments to individual traders speculating on price movements.

This article provides a complete overview of forex trading—how it works, who trades it, and what you need to get started.

Key Takeaways

• Forex trading involves currency pairs, such as EUR/USD or GBP/JPY.
• It is open 24 hours a day, five days a week, across major financial centres.
• Traders use technical and fundamental analysis to forecast movements.
• Leverage increases potential profits but also raises risk exposure.
• A trading plan and risk management are essential for success.

What Is Forex Trading?

Forex trading is the exchange of one currency for another at an agreed-upon price. Currencies are quoted in pairs—where the first currency is the base, and the second is the quote.

Example

If EUR/USD = 1.1000, it means 1 euro equals 1.10 US dollars.

• Buy trade: You believe the euro will strengthen.
• Sell trade: You believe the euro will weaken.

Why Do People Trade Forex?

• Speculation: To profit from short-term price moves.
• Hedging: Protect international business or investments.
• Diversification: Add exposure outside traditional assets.
• Leverage: Amplify returns using borrowed capital.

Who Trades Forex?

Participant	Purpose
Central Banks	Stabilise currency value
Corporations	Hedge currency exposure
Hedge Funds	Capitalise on macro trends
Retail Traders	Speculate on price movements

How Forex Trading Works

• Market Hours: Runs 24/5 from Monday (Sydney) to Friday (New York)
• Leverage: Ranges from 1:30 (retail in UK/EU) to 1:500 (offshore)
• Lot Sizes: Standard (100,000), Mini (10,000), Micro (1,000)
• Spreads: The difference between bid and ask prices

Major Currency Pairs

Pair	Currencies	Region
EUR/USD	Euro / US Dollar	Europe / USA
GBP/USD	British Pound / USD	UK / USA
USD/JPY	US Dollar / Japanese Yen	USA / Japan
USD/CHF	US Dollar / Swiss Franc	USA / Switzerland
AUD/USD	Australian Dollar / USD	Australia / USA

Structured Forex Education

Instead of jumping in blind, equip yourself with the tools and structure to succeed. Our expert-led Forex Course walks you through everything from market basics to building a winning strategy.

How to Analyse the Forex Market

Technical Analysis

• Charts, indicators, candlestick patterns
• Best for short-term traders and scalpers

Fundamental Analysis

• Interest rates, GDP, inflation, employment
• Ideal for swing traders and long-term positions

Forex Trading Risks and Challenges

• Leverage Risk: Amplifies losses as well as gains
• Market Volatility: Prices can change rapidly around news
• Broker Risk: Choose a regulated broker with transparent practices
• Psychological Stress: Emotional decisions often lead to losses

Case Study: From Demo to Real Profits

Dinesh, a trader from Lahore, started on a demo account after watching YouTube tutorials. After months of inconsistent results, he enrolled in a structured trading course that included live mentoring and a journal-based approach. Within 4 months, he began generating steady results on a small live account, focusing on EUR/USD and GBP/JPY during the London session.

Fundamental vs Technical Analysis Comparison

Feature	Technical Analysis	Fundamental Analysis
Focus	Price charts and patterns	Economic data and events
Timeframe	Short to medium term	Medium to long term
Tools Used	RSI, MACD, Moving Averages	CPI, GDP, interest rates
Used By	Day traders, scalpers	Swing and position traders

Frequently Asked Questions

What is forex trading in simple terms?

It’s the process of exchanging one currency for another to profit from changes in exchange rates.

Can you make money with forex trading?

Yes, but it requires education, discipline, and risk management. Many beginners lose money due to lack of preparation.

Is forex trading legal?

Yes, it’s legal in most countries but should be done through regulated brokers.

How much do I need to start forex trading?

You can start with as little as $100, though $500–$1000 is recommended for meaningful risk control.

What’s the best time to trade forex?

During high-volatility periods like the London–New York session overlap (13:00–17:00 GMT).