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Forex and CFD trading carries a high level of risk and may not suit every investor. You could lose some or all of your capital, and past performance does not guarantee future results. FX Recap content is for education only and is not financial or investment advice.
What is the forex market?
Forex, short for foreign exchange, is the global market where currencies are bought and sold against each other. The Bank for International Settlements' 2022 Triennial Survey put average turnover at about $7.5 trillion a day, the largest financial market in the world.
Unlike stocks traded on exchanges such as the NYSE, forex runs over the counter: trades happen directly between participants across a global electronic network. Banks, central banks, hedge funds, companies and individual traders all draw on the same pool of liquidity.
Its core job is currency conversion. When a company pays an overseas supplier, a central bank defends its currency or a traveller changes cash, that is the forex market at work. For traders, it is a way to profit by correctly anticipating how one currency will move against another.
Forex has no central location. It runs through four main financial centres, Sydney, Tokyo, London and New York, which is why it trades around the clock, five days a week.
Who trades forex, and what moves prices
Commercial banks
The interbank market is the core. Major banks quote prices to each other and to institutions, supplying most of the daily liquidity.
Central banks
The Federal Reserve, the ECB and others manage exchange rates and carry out monetary policy.
Hedge funds
Macro funds take positions on global trends, interest rate expectations and geopolitical events.
Retail traders
Individuals trade through regulated brokers, using analysis tools to find opportunities.
Interest rates
Central bank rate decisions are the biggest single driver of currency value.
Data and events
Inflation (CPI), jobs (Non-Farm Payrolls), GDP growth and geopolitical risk all move rates.
How forex trading works
Every trade involves two currencies: you buy one and sell the other at the same time. Profit or loss depends on how the rate moves between opening and closing the position. Going long means buying the base currency, expecting it to rise; going short means selling it, expecting it to fall.
| Term | What it means |
|---|---|
| Bid | The price at which the market will buy the base currency from you. |
| Ask | The price at which the market will sell the base currency to you. |
| Spread | The gap between bid and ask: your built-in cost on every trade. On a standard lot of EUR/USD, a 2-pip spread costs $20. |
| Leverage | Borrowed exposure. The FCA caps retail leverage at 30:1 on major pairs, and it magnifies losses as fast as gains. |
| Margin | The deposit your broker holds to keep a leveraged position open. |
Broker risk warnings required in the UK and EU typically show that 70% to 80% of retail CFD accounts lose money. Manage the downside first; the upside follows from discipline, not the other way round.
Currency pairs explained
The first currency in a pair is the base; the second is the quote. The price is how much of the quote currency buys one unit of the base.
| Category | Examples | Characteristics | Typical spread |
|---|---|---|---|
| Majors | EUR/USD, GBP/USD, USD/JPY | Highest liquidity, tightest spreads | 0.1 to 1.5 pips |
| Minors | EUR/GBP, AUD/JPY, GBP/CHF | No USD, moderate liquidity | 1 to 5 pips |
| Exotics | USD/TRY, USD/ZAR, EUR/PLN | Emerging-market currency, high volatility | 5 to 50+ pips |
The seven majors are EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, USD/CAD and NZD/USD. Beginners usually start with EUR/USD or GBP/USD: the tightest spreads and the most research available.
Pips, lots and position sizing
Before any live trade, know how profit and loss are calculated. These three ideas are the maths behind every position.
| Lot type | Units | Pip value (EUR/USD) | Best for |
|---|---|---|---|
| Standard | 100,000 | About $10 | Experienced traders |
| Mini | 10,000 | About $1 | Intermediate traders |
| Micro | 1,000 | About $0.10 | Beginners |
| Nano | 100 | About $0.01 | Practice accounts |
Lot size = account risk ($) ÷ (stop-loss in pips × pip value). Run this before every trade, never after, or let the position size calculator do it.
Forex trading sessions
The market runs 24 hours a day, five days a week, across four main centres, each with its own liquidity.
| Session | Opens (GMT) | Closes (GMT) | Most active pairs |
|---|---|---|---|
| Sydney | 10:00 PM | 7:00 AM | AUD/USD, NZD/USD |
| Tokyo | 12:00 AM | 9:00 AM | USD/JPY, AUD/JPY |
| London | 8:00 AM | 5:00 PM | EUR/USD, GBP/USD |
| New York | 1:00 PM | 10:00 PM | USD/CAD, EUR/USD |
From 1:00 PM to 5:00 PM GMT, London and New York overlap: the highest daily volume and the biggest intraday moves on major pairs. See live times on the market hours tool.
Risk management in forex
No topic deserves more attention. A trader with an average strategy and solid risk discipline will outlast a brilliant strategist with poor discipline. Keep each trade's risk to 1% to 2% of the account: at 2% a trade it takes 50 straight losses to wipe out an account; at 10%, just 10.
- Define your stop before entry
No stop means no trade, however strong the setup looks.
- Calculate position size
Use your dollar risk and stop distance to find the right lot size.
- Set a realistic take-profit
Aim for at least 1:1.5 or 1:2 risk to reward. With 1:2, you only need to win 4 trades in 10 to be profitable.
- Stick to the plan in volatile markets
Do not widen stops because price is close to them.
- Log every trade
Without a journal you cannot see what works or where your edge comes from.
Losses are harder to recover than they look: a 10% loss needs an 11% gain to recover, 20% needs 25%, and 50% needs 100%. Check your own numbers with the drawdown calculator.
Technical and fundamental analysis
Most experienced traders combine both: fundamentals for direction, technicals for timing.
Support and resistance
Price levels where buyers or sellers have shown strength before: key zones for entries, exits and stops.
Candlestick patterns
Pin bars, engulfing candles and inside bars can signal reversals or continuations.
Trend analysis
Higher highs and higher lows mean an uptrend; lower highs and lower lows, a downtrend.
Indicators
RSI, MACD and moving averages work best as confirmation, not standalone signals.
High-impact news
US Non-Farm Payrolls (first Friday of the month), FOMC and ECB decisions, Bank of England meetings and US CPI can move majors 50 to 200 pips in minutes.
Top-down timing
The daily chart sets direction, the 4-hour gives context, and the 1-hour or 15-minute chart gives the entry.
Track upcoming releases on the economic calendar, and go deeper in technical analysis.
Forex trading styles
No single strategy suits every trader. The right one depends on your time, how you handle drawdowns and which market behaviour you read most consistently.
| Style | Trade length | Screen time | Best for |
|---|---|---|---|
| Scalping | Seconds to minutes | Very high | Full-time traders |
| Day trading | Minutes to hours | High, by session | Committed daily traders |
| Swing trading | 2 to 10 days | Moderate | Part-time traders and beginners |
| Position trading | Weeks to months | Low | Macro-focused traders |
Swing trading is the most forgiving place to start: you analyse charts once a day, orders run with pre-set levels and you are not tied to a screen.
Picking your first forex broker
Your broker is the infrastructure your trading runs on. A poorly regulated or expensive broker eats into results before your strategy even starts. Compare the all-in cost per round trip, not just the advertised spread, and test the platform on demo first.
- Verify regulation
Check the licence on the regulator's own website, never only on the broker's. Strong regulators include the FCA, ASIC, CFTC/NFA, CySEC, BaFin, FINMA, FSA Japan, MAS, FMA, CIRO, FSCA and DFSA.
- Open a demo account
Trade virtual funds until your strategy produces consistent results over at least 50 to 100 trades, typically 4 to 8 weeks.
- Start with a small deposit
$100 to $500 is enough to begin live trading with micro lots.
- Test a withdrawal early
Request a small withdrawal within the first month. A legitimate broker processes it without friction.
Compare tested brokers in our top broker rankings, or answer a few questions in the broker finder.
Mistakes that end most beginners' accounts
High leverage turns small moves into account-ending losses. Size by risk, not by what the broker allows.
One bad news spike can wipe out weeks of gains.
Doubling up after a loss to win it back is how a bad day becomes a blown account.
Real money is an expensive teacher. Prove the plan on demo first.
No one can promise returns. Anyone who does is selling something.
Check a firm against our scam broker blacklist before depositing.
A realistic study plan
Most traders need 6 to 18 months of focused study and practice before results become consistent. This is a sensible order to work in.
| When | Focus | Goal |
|---|---|---|
| Week 1 | Stages 1 and 2 | Understand what you are trading and what each trade costs |
| Week 2 | Stage 3 | Size a position by hand for any pair |
| Weeks 3 to 4 | Stage 4 | Read a chart and know when the market is busiest |
| Month 2 | Stage 5 and a demo account | Follow a written plan with fixed risk on every trade |
| Months 3 to 4 | Demo trading and a journal | 50 to 100 demo trades with consistent rules |
| After that | Stage 6, then a small live account | Trade micro lots and test a withdrawal early |
Test yourself along the way with the forex quizzes.
Free forex trading tools
Calculators, live data and broker research to plan a trade and choose where to place it. All free, no sign-up.
Every tool is listed in the tools directory.
More from the FX Recap academy
Learn Forex FAQs
How much money do I need to start trading forex?
Many regulated brokers let you open a live account with $50 to $100. $500 to $1,000 gives more room to size positions correctly with micro lots while keeping risk to 1% to 2% per trade.
Is forex trading legal in my country?
Forex trading is legal in most countries, provided you trade through a broker licensed in a jurisdiction that accepts your residency. Check your country on our forex legality map.
What is the best time to trade forex?
The London and New York overlap, 1:00 PM to 5:00 PM GMT, has the highest volume and clearest moves on major pairs. Liquidity is thinnest between the New York close and the Sydney open, roughly 10 PM to midnight GMT.
Can I trade forex while working full-time?
Yes. Swing trading suits people who cannot watch charts during the day: analyse once or twice daily, place orders with pre-set stops and targets, and let trades run.
How long does it take to learn forex?
A realistic expectation is 6 to 18 months of focused study and practice before results become consistent. Traders who skip the demo stage usually learn the same lessons through real losses.
What is the difference between forex and CFDs?
Retail forex is usually traded through CFDs (contracts for difference), which let you speculate on a pair's price without holding the currencies. CFD rules vary by country, so check that your broker is authorised to offer them where you live.
Is this forex course really free?
Yes. Every lesson, quiz and tool on FX Recap is free, with no sign-up or paywall. Some pages contain affiliate links, which never affect what we teach.
Sources: BIS Triennial Central Bank Survey 2022, FCA PS19/18: restricting CFDs for retail clients.