Forex trading works by exchanging one currency for another in the global foreign exchange market. It is the world’s largest and most liquid financial market, where currencies are traded in pairs like EUR/USD or GBP/JPY. Traders aim to profit from the fluctuations in exchange rates by buying low and selling high — or selling high and buying low — through platforms that provide access to live currency prices.

Key Takeaways

• Forex trading is the simultaneous buying of one currency and selling of another
• Currencies are traded in pairs like EUR/USD or GBP/JPY
• Traders speculate on price movements to generate profit
• It operates 24 hours a day, five days a week
• Platforms allow leveraged trading for greater exposure

The Mechanics Of Forex Trading

1. Currency Pairs

Each trade involves two currencies. The first is the base currency, and the second is the quote currency. For example, in GBP/USD:

• If GBP/USD = 1.3000, it means 1 GBP = 1.30 USD

2. Going Long vs Going Short

• Long Position: Buying the base currency expecting it to rise
• Short Position: Selling the base currency expecting it to fall

3. How Profits Are Made

Profits come from changes in exchange rates. If you buy EUR/USD at 1.1000 and sell at 1.1100, you gain 100 pips. Your actual profit depends on trade size and leverage.

4. Leverage and Margin

Leverage allows traders to control large positions with a smaller deposit (margin). In the UK, leverage is typically 30:1 for major currency pairs.

5. Execution via Trading Platforms

Forex is traded electronically through brokers offering platforms like MetaTrader 4 (MT4), MT5, or cTrader. These platforms display real-time charts, tools, and order management systems.

Case Study: Applied Learning Through Our Forex Course

A student from our CPD Accredited Mini MBA in Applied Professional Forex Trading mastered the concept of trend-following by combining technical analysis with central bank news. After learning how forex trading works, they identified a bullish breakout on AUD/USD following an RBA rate hike. Applying a textbook strategy from the course, the student entered the trade with defined risk and secured a 2:1 reward, reinforcing how real knowledge can lead to real profits.

Fundamental vs Technical Analysis

Feature	Fundamental Analysis	Technical Analysis
Focus	Economic data, interest rates, geopolitics	Price charts, indicators, patterns
Tools	GDP, CPI, Central Bank policy	Moving Averages, RSI, MACD
Timeframe	Medium to long-term	Short to medium-term
Best for	Macro traders, investors	Day traders, swing traders

Frequently Asked Questions

What is forex trading?

Forex trading is the buying and selling of currencies with the aim of making a profit from exchange rate movements.

How do I start forex trading?

You’ll need to choose a regulated broker, open an account, fund it, and use a platform like MT4 to begin trading.

Can you make money trading forex?

Yes, but it requires knowledge, discipline, and a solid strategy. Most beginners lose due to poor risk management.

What is a pip in forex trading?

A pip is the smallest price move in a currency pair. For most pairs, it’s 0.0001, except those with JPY where it’s 0.01.

Where can I learn how forex trading works in depth?

Our Trading Courses teach you how the forex market works, including live trading examples, platform walkthroughs, and economic theory.