Forex, or foreign exchange, is the exchange of one currency for another. It supports international trade, travel and investment. Traders also take positions on changes in exchange rates, which involves risk.
How a currency pair works
A pair expresses the value of one currency in another. In EUR/USD, EUR is the base currency and USD is the quote currency. A price of 1.1000 means one euro is valued at 1.10 US dollars. If it rises to 1.1100, the euro has strengthened relative to the dollar; if it falls, it has weakened.
Buying and selling
Buying a pair gives exposure to the base currency rising relative to the quote currency. Selling gives exposure to the opposite move. The trading result depends on position size, entry and exit prices, costs and the account’s currency.
Pips and position size
A pip is a conventional unit of exchange-rate movement. For many non-yen pairs, a pip is 0.0001; for many yen pairs it is 0.01. Platforms can display smaller fractional increments. Check the product specification.
A standard forex lot conventionally represents 100,000 units of the base currency. Providers may offer smaller sizes or different contracts. For EUR/USD, 1,000 euros of exposure has a pip value of $0.10 when a pip is 0.0001. The same price move creates a larger money result on a larger position.
Exchanging currency versus leveraged trading
Exchanging money for a trip involves buying currency you can spend. A retail forex CFD gives contractual exposure to price changes without ownership of the underlying currencies. Other forex products include deliverable transactions, rolling spot contracts, forwards, futures and options; their terms differ.
Many retail accounts use leverage, allowing a position larger than the collateral placed. Leverage magnifies gains and losses relative to the capital committed. Read the risk explanation before comparing products.
Why exchange rates move
Interest-rate expectations, inflation, growth, trade flows and political developments can affect demand for currencies. Markets respond to new information relative to expectations. A strong economic figure does not guarantee a currency will rise, and price reactions can change quickly.
When the market is active
Forex activity spans major financial centres during the working week. Trading hours, holiday closures and daily breaks depend on the instrument and provider. Session times shift with daylight-saving changes. Confirm the broker’s schedule and timezone instead of relying on a fixed global timetable.
Costs to understand
The spread is the difference between the price to buy and the price to sell. Some accounts add commission. Holding a position can create financing charges or credits, and converting currencies can add a cost. Compare total costs rather than an advertised minimum spread alone.
Where to start
Follow our beginner learning path, see a worked practice trade, and learn position sizing. When researching a provider, use the broker checklist.
This is general education. Forex and CFDs can cause substantial losses and do not suit everyone.
Build your knowledge before trading
Use provider education as a supplement to the independent guides. Practise interpreting a currency quote and calculating exposure before depositing funds.
XM — education resources AvaTrade — provider information
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