Forex Traiding

Foreign Exchange (Forex) Trading for Beginners

The forex market is virtually traded around the clock and across the globe. Learn more about forex trading with this retail forex guide for beginners.

July 10, 2025

The foreign exchange (forex) market offers a way to invest or speculate by exchanging one country’s currency for another. More than $6 trillion of currency changes hands every day, and because rates are always fluctuating, forex is a very dynamic market. But while forex trading offers profit potential, it’s also subject to substantial loss and other complex risks. For this reason, not all accounts qualify to trade forex.

Here are a few pointers for beginning forex traders.

Where forex trades

Retail clients generally have two ways to trade currencies:

• Futures market. A futures contract is an agreement to buy or sell a predetermined amount of a commodity or financial instrument at a certain price on a stipulated date. These contracts are traded on exchanges, and volume is typically limited to major currencies like the U.S. dollar (USD), euro (EUR), British pound (GBP), Japanese yen (JPY), and Canadian dollar (CAD).
• Forex market. Most foreign exchange trading takes place among institutional players—banks, dealers, and large intermediaries—in what’s known as the interbank market. Retail forex brokers like Charles Schwab Futures and Forex use this information to post competitive bids and offers for retail traders to sell or buy currencies in specific increments.

To trade both futures and forex, a trader needs to apply for a qualified account through their brokerage account.

How forex trades are quoted

Forex trading is subject to unique risks and isn’t suitable for everyone. It also takes time to understand how the product is traded and quoted. Currency trading on the forex market happens in pairs because two currencies are traded simultaneously. The quote for a forex currency pair references what it costs to convert one currency to the other.

For example, if the U.S. dollar and Canadian dollar (USD/CAD) pair is trading at 1.34, it means that $1 USD is equal to 1.34 CAD. The easiest way to understand the quote of any currency pair is to read the pair from left to right. For example, if the euro and U.S. dollar (EUR/USD) pair is trading at 1.09, that means 1 EUR is equal to $1.09 USD.

How currencies can fluctuate

Like all asset classes, currencies fluctuate for reasons like interest rates, inflation, economic growth, and future expectations. However, currency fluctuations are especially volatile because they’re relative to the same dynamics in the other half of the pair. Exchange rates react to economic data, government meetings, and speeches by central bankers, as well as anything that might affect relative expectations of growth, interest rates, and inflation among countries and their currencies.

Impact of the net financing rate

Trade currencies with paperMoney

Traders new to the forex market can experiment with their strategies using the paperMoney ® feature on the thinkorswim ® platform. This simulated trading environment allows traders to practice, test strategies, and begin to explore forex dynamics without risking a dollar, euro, pound, or yen.

Interested in trading forex?

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The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The securities, investment products, and investment strategies mentioned are not suitable for everyone. Each investor needs to review each transaction for their own particular situation.

Futures, and Futures options trading involves substantial risk and is not suitable for all investors. Please read the Risk Disclosure Statement for Futures and Options prior to trading futures products.

Forex trading involves leverage, carries a substantial level of risk, and is not suitable for all investors. Please read the Risk Disclosure for Forex: https://www.schwab.com/resource/forex-risk-disclosure-statement.

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Charles Schwab Futures and Forex LLC is the counterparty to all forex customer trades, and exclusively uses straight-through processing such that it automatically (without human intervention and without exception) enters into the identical but opposite transaction with another liquidity provider (creating an offsetting position in its own name).

Past performance is no guarantee of future results.

Investing involves risk, including loss of principal, and for some products, loss of more than your initial investment.

Currency trading is speculative, volatile and not suitable for all investors.

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What is forex and how does it work?

Take a closer look at everything you’ll need to know about forex, including what it is, how you trade it and how leverage in forex works. Interested in forex trading with us?

Start trading today. Call +44 (20) 7633 5430, or email [email protected] to talk about opening a trading account. We’re here 24/5.

Written by Anzél Killian, Senior Financial Writer. Reviewed by Axel Rudolph, Senior Market Analyst

What is forex trading?

Forex trading, also known as foreign exchange or FX trading, is the conversion of one currency into another. FX is one of the most actively traded markets in the world, with individuals, companies and banks carrying out around $6.6 trillion worth of forex transactions every single day.

While a lot of foreign exchange is done for practical purposes, the vast majority of currency conversion is undertaken by forex traders to earn a profit. The amount of currency converted every day can make price movements of some currencies extremely volatile – which is something to be aware of before you start forex trading.

We’re one of the world leading retail forex providers 7 – with a range of major, minor and exotic currency pairs for you to go long or short on.

Ready to start trading forex? Open an account to get started

Beginners’ guide to forex: learn currency trading in 6 steps

1. Forex trading essentials for beginners
2. How does forex trading work?
3. Why do people trade forex?
4. Learn how currency markets work
5. How to become a forex trader
6. Free forex trading courses and webinars

Forex trading essentials for beginners

• What is a forex pair?
• What are the base and quote currencies?
• What is a pip in forex?
• What is a lot in forex trading?

What is a forex pair?

A forex pair is a combination of two currencies that are traded against each other. There are hundreds of different combinations to choose from, but some of the most popular include the euro against the US dollar (EUR/USD), the US dollar against the Japanese yen (USD/JPY) and the British pound against the US dollar (GBP/USD).

What are the base and quote currencies?

The base currency is always on the left of a currency pair, and the quote is always on the right. The base currency is always equal to one, and the quote currency is equal to the current quote price of the pair – which shows how many of the quote currency it’ll cost to buy one of the base. So, when you’re trading currency, you’re always selling one to buy another.

What is a pip in forex?

A pip in forex is usually a one-digit movement in the fourth decimal place of a currency pair. So, if GBP/USD moves from $1.35361 to $1.35371, then it has moved a single pip. But, if you’re trading JPY crosses, a pip is a change at the second decimal place. A price movement at the fifth decimal place in forex trading is known as a pipette.

What is a lot in forex trading?

Currencies are traded in lots, which are batches of currency used to standardise forex trades. As forex price movements are usually small, lots tend to be very large. For example, a standard lot is 100,000 units of the base currency.

How does forex trading work?

Forex trading works like any other transaction where you are buying one asset using a currency. In the case of forex, the market price tells a trader how much of one currency is required to purchase another. For example, the current market price of the GBP/USD currency pair shows how many US dollars it would take to buy one pound.

Each currency has its own code – which lets traders quickly identify it as part of a pair. We’ve included codes for some of the most popular currencies below.

• What does it mean to buy or sell a currency pair? To buy a currency pair means that you expect the price to rise, indicating that the base currency is strengthening relative to the quote currency. To sell a currency pair means that you expect the price to fall, which would happen if the base currency weakened against the quote.

Why do people trade forex?

• Taking a position on currencies strengthening or weakening
• Hedging with forex
• Seize opportunity 24 hours a day

Taking a position on currencies strengthening or weakening

Traders make a prediction on forex pairs to profit from one currency strengthening or weakening against another. When the price of a pair is rising, it means that the base is strengthening against the quote and when it’s falling, the base is weakening against the quote.

That’s because a rising price means that more of the quote are needed to buy a single unit of the base, and a falling price means that fewer of the quote are needed to buy one of the base. So, traders would likely go long if the base is strengthening relative to the quote currency, or short if the base is weakening.

Some of the most popular forex trading styles are scalping, day trading, swing trading and position trading. You might choose a different style depending on whether you have a short- or long-term outlook.

Hedging with forex

Seize opportunity 24 hours a day

The forex market is open 24 hours a day thanks to the global network of banks and market makers that are constantly exchanging currency. The main sessions are the US, Europe and Asia, and it’s the time differences between these locations that enables the forex market to be open 24 hours a day.

The forex trading market hours are incredibly attractive, offering you the ability to seize opportunity around the clock. We are also the only provider to offer weekend trading on certain currency pairs, including weekend GBP/USD, EUR/USD and USD/JPY. That means you can trade these combinations when others can’t.

Learn how currency markets work

What moves the forex market?

1. Central banks
2. News reports
3. Market sentiment

The forex market is made up of currencies from all over the world, which can make exchange rate predictions difficult as there are many forces that can contribute to price movements. That said, the following factors can all have an effect on the forex market.

Central banks

A currency’s supply is controlled by central banks, who can announce measures that will have a significant effect on that currency’s price. Quantitative easing, for example, involves injecting more money into an economy, and can cause a currency’s price to fall in line with an increased supply.

News reports

Commercial banks and other investors tend to want to put their capital into economies that have a strong outlook. So, if a positive piece of news hits the markets about a certain region, it will encourage investment and increase demand for that region’s currency. If negative news hits, then demand might be expected to fall. This is why currencies tend to reflect the reported economic health of the region they represent.

Market sentiment

Market sentiment, which often reacts to the news, can also play a major role in driving currency prices. If traders believe that a currency is headed in a certain direction, they will trade accordingly and may convince others to follow suit, increasing or decreasing demand.

How to become a forex trader

Learn the ways to trade forex

There are several ways to trade forex, including trading spot forex, forex futures and currency options. When you trade with us, you’ll be predicting on the price of spot forex, futures and options either rising or falling with a CFD account.

• Spot forex trading lets you trade forex pairs at their current market price with no fixed expiries
• Forex or currency futures enable you to trade forex pairs at a specified price to be settled at a set date in the future or within a range of future dates
• Forex or currency options let you trade contracts that give the holder the right, but not the obligation, to buy or sell a currency pair at a set price, if it moves beyond that price within a set time frame

All of these – spot, futures and options – can be traded with and FX CFDs. These are financial derivatives which let you predict on whether prices will rise or fall without having to own the underlying asset.

What is a forex broker?

A forex broker provides access to trading platforms that can be used to buy and sell currencies. For example, when you trade forex with us, you’ll be able to use our award-winning platform 8 or MT4 – both of which have their own unique benefits.

Forex brokers charge a fee, usually in the form of a spread. This is the difference between the buy (offer) and sell (bid) prices, which are wrapped around the underlying market price. The costs for a trade are factored into these two prices, so you’ll always buy slightly higher than the market price and sell slightly below it.

Traditionally, a forex broker would buy and sell currencies on behalf of their clients or retail traders. But, with the rise of online trading, you can buy and sell currencies yourself with financial derivatives like CFDs, so long as you have access to a trading platform. This is because all forex trades are conducted over-the-counter (OTC), rather than on exchange like stocks.

Discover the risks and rewards of trading forex

• Forex is the most-traded financial market in the world, which means that forex prices are constantly moving, creating more opportunities to trade
• Some forex pairs are more volatile than others. Those with low liquidity are often more volatile, including many ‘minor’ pairs
• Pairs that include USD are often more liquid because as the world’s reserve currency, USD is often in high demand
• Slippage is sometimes an issue in forex trading, given how volatile the market can be. To help mitigate the effects of slippage on your forex trades, you should add stops and limits
• But, if you are aware of the risks and take appropriate steps to mitigate your exposure, then the forex market can be the source of your next opportunity

Free forex trading courses and webinars

To succeed when trading forex, you’ll need to take advantage of educational resources and platforms to help you build your confidence. We offer both: IG Academy and our demo account.

IG Academy has a wealth of information to get you acquainted with the markets and learn the skills needed for boosting your chances of trading forex successfully. Alternatively, you can use an IG demo account to build your trading confidence in a risk-free environment, complete with $20,000 in virtual funds to plan, place and monitor your trades.

We also offer trading strategy and news articles for all experience levels. This includes ‘novice’, like how to be a successful day trader, up to ‘expert’ – looking at technical indicators that you’ve perhaps never heard of.

Once you’ve built your confidence and feel like you’re ready to trade the live forex markets, you can create a live account with us in five minutes or less. You’ll get access to award-winning platforms, 8 expert support around the clock and spreads from just 0.6 points.

FAQs

What does forex (FX) trading mean?

Forex trading means exchanging one currency for another. Forex is always traded in pairs which means that you’re selling one to buy another.

Is there a difference between forex trading and currency trading?

There is no difference between forex trading and currency trading, as both mean that you’re exchanging one currency for another. When forex trading or currency trading, you’re attempting to earn a profit by predicting on whether the price of a currency pair will rise or fall.

How can I make money from forex trading?

You can make money from forex trading by correctly predicting a currency pair’s price movements and opening a position that stands to profit. For example, if you think that a pair will decline in value, you could go short and profit from a market falling.

Alternatively, if you think a pair will increase in value, you can go long and profit from an increasing market.

How can I get started trading FX?

You can get started trading FX with a forex trading account. Plus, you’ll also need to be familiar with what moves the forex market – like central bank announcements, news reports and market sentiment – and take steps to manage your risk accordingly.

What costs and fees do you have to pay when currency trading?

The costs and fees you pay when trading currency will vary from broker to broker. But, you should bear in mind that you’ll often be trading currency with leverage, which will reduce the initial amount of money that you’ll need to open a position. Be aware though that leverage can increase both your profits and your losses.

How much money is traded on the forex market daily?

Approximately $6.6 trillion worth of forex transactions take place daily, which is an average of $250 billion per hour. The market is largely made up of institutions, corporations, governments and currency speculators – speculation makes up roughly 90% of trading volume and a large majority of this is concentrated on the US dollar, euro and yen.

Is forex trading income taxable?

The tax on forex positions does depend on which financial product you are using to trade the markets.

When you trade via a forex broker or through CFDs, any gains to your forex positions are taxable. However, your losses are tax-deductible, and depending on your circumstances can also be used to offset gains made elsewhere. 9

How is the forex market regulated?

Despite the enormous size of the forex market, there is very little regulation because there is no governing body to police it 24/7. Instead, there are several national trading bodies around the world who supervise domestic forex trading, as well as other markets, to ensure that all forex providers adhere to certain standards. For example, in the UK the regulatory body is the Financial Conduct Authority (FCA).

What are gaps in forex trading?

Gaps are points in a market when there is a sharp movement up or down with little or no trading in between, resulting in a ‘gap’ in the normal price pattern. Gaps do occur in the forex market, but they are significantly less common than in other markets because it is traded 24 hours a day, five days a week.

However, gapping can occur when economic data is released that comes as a surprise to markets, or when trading resumes after the weekend or a holiday. Although the forex market is closed to speculative trading over the weekend, the market is still open to central banks and related organisations. So, it is possible that the opening price on a Sunday evening will be different from the closing price on the previous Friday night – resulting in a gap.

Develop your forex knowledge with IG

Find out more about forex trading and test yourself with IG Academy’s range of online courses.

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IG International Limited is part of the IG Group and its ultimate parent company is IG Group Holdings Plc. IG Group established in London in 1974, and is a constituent of the FTSE 250 index.

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