What Is Forex?
Forex, also known as the foreign exchange market, involves converting one currency into another. It's one of the most active markets globally, with individuals, businesses, and banks trading a daily volume of $6.6 trillion. While many transactions occur for practical reasons, most conversions are driven by investors seeking profits. The sheer volume of daily currency conversions can lead to extreme price volatility, a critical factor to consider before trading forex.
With us, you can go long or short on a wide range of major, minor, and exotic currency pairs.
👉 Ready to start trading forex?
Beginner’s Guide to Forex Trading: Discover Currency Trading in 6 Steps
- Forex Trading Fundamentals for Beginners
- How Does Forex Trading Work?
- Why Do People Trade Forex?
- How Currency Markets Function
- How to Trade Forex
What Is a Currency Pair?
A forex pair combines two currencies traded against each other. Popular pairs include EUR/USD (euro vs. U.S. dollar), USD/JPY (U.S. dollar vs. Japanese yen), and GBP/USD (British pound vs. U.S. dollar).
Base and Quote Currencies Explained
- Base currency: Left side of the pair (always = 1).
- Quote currency: Right side, representing the current exchange rate.
When trading, you sell one currency to buy another.
What Is a Pip in Forex?
A pip typically equals a one-digit move in the fourth decimal place (e.g., EUR/USD moving from 1.3536 to 1.3537). For JPY pairs, it’s the second decimal. A fifth-decimal move is a "pipette."
What Is a Lot in Forex?
Currencies are traded in standardized lots. A standard lot = 100,000 units of the base currency.
How Does Forex Trading Work?
Forex trading mirrors buying any asset with currency. The market price indicates how much of one currency is needed to buy another. For example, EUR/USD shows how many dollars are needed to purchase one euro.
Buying vs. Selling Currency Pairs
- Buy (Long): Expect the base currency to strengthen.
- Sell (Short): Expect the base currency to weaken.
Key Forex Concepts
- Spread: Difference between buy/sell prices.
- Margin & Leverage: Deposit required to open a leveraged position (e.g., 0.5% margin on EUR/USD = $500 for a $100,000 position).
Predicting Currency Movements
Investors profit from a currency’s strength/weakness relative to another. Popular trading styles:
- Scalping
- Day trading
- Swing trading
- Position trading
Forex Hedging
Hedging reduces risk by opening offsetting positions. Example: Short GBP/USD to hedge a long EUR/USD position, leveraging their positive correlation.
24-Hour Trading Opportunities
Forex operates 24/5 due to global market sessions (U.S., Europe, Asia). Weekend trading is available for select pairs like GBP/USD and EUR/USD.
How Currency Markets Work
Factors Influencing Forex Markets
- Central Banks: Control currency supply (e.g., quantitative easing).
- News: Positive/negative economic reports impact demand.
- Market Sentiment: Investor perceptions drive price movements.
How to Trade Forex
Trade forex via derivatives like CFDs without owning the actual currency.
Steps to Trade with IG:
- Choose a Currency Pair (80+ options).
- Decide Buy/Sell based on analysis.
- Select Trading Method (CFDs).
- Open Your Position.
- Monitor & Close (use price alerts).
CFD Trading Example
- Long Position: Profit if price rises.
- Short Position: Profit if price falls.
👉 Learn more about managing risk
FAQs
What’s the Best Time to Trade Forex?
The most volatile periods overlap major market sessions (e.g., London & New York: 8 AM–12 PM EST).
How Do I Start Forex Trading with $100?
Use a micro account (1,000-unit lots) and leverage (e.g., 1:100) to maximize small capital.
Can I Trade Forex on Mobile?
Yes! Use platforms like MT4 or IG’s app for real-time trading.