Forex trading, or foreign exchange trading, involves buying one currency while simultaneously selling another, with the goal of profiting from changes in exchange rates. As the largest and most liquid financial market in the world, forex operates 24 hours a day, five days a week, across global financial hubs including London, New York, and Tokyo.

Key Takeaways

• Forex trading involves exchanging one currency for another
• The market is decentralised, operating across banks and brokers
• Traders profit by speculating on currency price movements
• Leverage allows amplified exposure but increases risk
• Understanding macroeconomic factors is critical to success

How Forex Trading Works

Forex trading is conducted in currency pairs, such as EUR/USD or GBP/JPY. The first currency is the base, and the second is the quote. If EUR/USD is priced at 1.1000, it means 1 Euro is worth 1.10 US Dollars.

Traders aim to profit from:

• Appreciation (e.g. buying EUR/USD if they believe the euro will rise)
• Depreciation (e.g. selling GBP/JPY if they believe the pound will fall)

Trades are executed via brokers using platforms like MetaTrader 4, MetaTrader 5, or cTrader.

Core Components of Forex Trading

1. Currency Pairs

Major pairs like EUR/USD, GBP/USD, and USD/JPY dominate trading volume. Crosses and exotics offer more volatility.

2. Leverage

Leverage allows traders to control large positions with small capital. For instance, 1:30 leverage allows you to control £30,000 with just £1,000.

3. Spread

The difference between the buy (ask) and sell (bid) price. Lower spreads mean lower transaction costs.

4. Lot Sizes

Standard lot = 100,000 units
Mini lot = 10,000 units
Micro lot = 1,000 units

5. Pip

A pip is the smallest price movement in a currency pair. In most cases, it’s the fourth decimal point (0.0001).

Case Study: Learning Forex Trading From Scratch

Ali, a university student in Manchester, knew nothing about trading but was intrigued by global currencies. He enrolled in our CPD Accredited Mini MBA in Applied Professional Forex Trading. Starting with our foundational module, he learned how interest rates, inflation, and employment data impact forex markets. Through practical simulations and platform training, he executed demo trades on EUR/USD and gradually built a live portfolio, fully understanding every component of the trade.

Fundamental vs Technical Forex Trading

Aspect	Fundamental Trading	Technical Trading
Basis of Decisions	Economic indicators, news, central bank policy	Chart patterns, price action, indicators
Tools Used	Economic calendar, central bank reports	RSI, MACD, support/resistance
Timeframe	Medium to long-term	Short to medium-term
Suitability	Macro thinkers, analysts	Visual learners, strategy followers

Frequently Asked Questions

What is forex trading in simple terms?

Forex trading is exchanging one currency for another with the aim of making a profit from changing exchange rates.

How do you make money in forex trading?

By buying currencies that increase in value or selling ones expected to drop, and profiting from the difference in price.

Is forex trading risky?

Yes, especially when using leverage. Risk management strategies and education are essential to minimise losses.

Can beginners start forex trading easily?

Yes, with access to demo accounts, tutorials, and structured learning, beginners can start forex trading safely.

Where can I learn to trade forex properly?

Our Trading Courses provide expert-led education in forex fundamentals, technical analysis, and execution skills.