CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

What Is Forex Trading?

Related subjects:
Reading time: 3 minute(s)
Forex – also known as the foreign exchange market – is the largest trading market in the world. Find out all about the FX market, currency pairs and more in this article.

*Since the recording of these videos, negative balance protection has come into force from 02.10.17. This means that whilst trading losses cannot exceed funds in your account, your capital is still at risk.

In this lesson you can learn:

  • What the forex market is
  • How a currency pair is built
  • How to use market moves to open a position

What is Forex?

Put simply, forex – also known as FX or foreign exchange – is the exchange of one currency for another at an agreed price. It’s a decentralised market where the world’s currencies are traded as an over-the-counter (OTC) market, which means that trades are fast, cheap, and are completed without the supervision of an exchange.

Forex never sleeps

Essentially, forex trading is the act of speculating on the movement of exchange prices by buying one currency while simultaneously selling another. Currency values rise (appreciate) and fall (depreciate) against each other due to a number of economic, geopolitical and technical factors.

Forex is a globally traded market, open 24 hours a day, five days a week (Monday to Friday). It follows the sun around the earth, opening on Monday morning in Wellington, New Zealand, before progressing to the Asian markets in Tokyo and Singapore. Next, it moves to London before closing on Friday evening in New York.

Even when the market is closed from Friday to Sunday, there is always something happening that will take its toll on various currencies by the open on Monday.

There is no larger market

Forex is the world’s most traded market with an average turnover in excess of around $5 trillion a day. This means that currency prices are constantly fluctuating in value against each other, creating multiple trading opportunities for investors to take advantage of.

It is rare that any two currencies will be identical to one another in value, and it's also rare that any two currencies will maintain the same relative value for more than a short period of time.

FX Market

You may not even know, but you’ve probably been a part of the FX market at least once in your lifetime. Let’s say you’re planning a holiday to the United States and you need to change your spending money from pounds sterling (GBP) into US dollars (USD).

On Monday, you find a local currency exchange and see that the exchange rate for GBP/USD is $1.45. This means that for every pound you exchange, you’ll get $1.45 in return. You spend £100 to get $145.

However, you pass the same currency exchange a few weeks later and notice that the latest exchange rate for GBP/USD is now $1.60. Your £100 would now get  $160 – an extra $15 – had you known to wait for the pound’s rise in value against the dollar.

The fundamentals of forex trading

Currency exchange rates are fluctuating all the time for a variety of factors, such as the strength of a country’s economy. What forex traders seek to do is profit on these fluctuations by speculating whether prices will rise or fall.

All forex pairs are quoted in terms of one currency versus another. Each currency pair has a ‘base’, which is the first denoted currency, and a ‘counter’, which is the second denoted currency.

Each currency could strengthen (appreciate) or weaken (depreciate). As there are two currencies in each pair, there are essentially four variables you are speculating on when it comes to forex trading.

If you believe the value of a currency will rise against another, you go long or ‘buy’ that currency. If you believe the value of a currency will fall against another, you go short or ‘sell’ that currency.

So for example, if you felt the USD would strengthen (appreciate) against the JPY, you’d go long or buy the USD/JPY forex pair. You’d also buy if you felt the JPY would weaken (depreciate) against the USD. Alternatively, if you felt the JPY would strengthen against the USD or the USD would weaken against the JPY, you’d sell or go short USD/JPY.

Because of all these factors, the forex market gives you endless possibilities every day, hour, even on a minute-to-minute basis.

This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

Xtb logo

Join over 935 000 investors from around the world

We use cookies

By clicking “Accept All”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.

This group contains cookies that are necessary for our websites to work. They take part in functionalities like language preferences, traffic distribution or keeping user session. They cannot be disabled.

Cookie name
Description
SERVERID
userBranchSymbol cc 2 March 2024
adobe_unique_id cc 1 March 2025
test_cookie cc 1 March 2024
SESSID cc 9 September 2022
__hssc cc 1 March 2024
__cf_bm cc 1 March 2024
intercom-id-iojaybix cc 26 November 2024
intercom-session-iojaybix cc 8 March 2024

We use tools that let us analyze the usage of our page. Such data lets us improve the user experience of our web service.

Cookie name
Description
_gid cc 9 September 2022
_gat_UA-22576382-1 cc 8 September 2022
_gat_UA-121192761-1 cc 8 September 2022
_ga_CBPL72L2EC cc 1 March 2026
_ga cc 1 March 2026
AnalyticsSyncHistory cc 8 October 2022
af_id cc 31 March 2025
afUserId cc 1 March 2026
af_id cc 1 March 2026
AF_SYNC cc 8 March 2024
__hstc cc 28 August 2024
__hssrc

This group of cookies is used to show you ads of topics that you are interested in. It also lets us monitor our marketing activities, it helps to measure the performance of our ads.

Cookie name
Description
MUID cc 26 March 2025
_omappvp cc 11 February 2035
_omappvs cc 1 March 2024
_uetsid cc 2 March 2024
_uetvid cc 26 March 2025
_fbp cc 30 May 2024
fr cc 7 December 2022
muc_ads cc 7 September 2024
lang
_ttp cc 26 March 2025
_tt_enable_cookie cc 26 March 2025
_ttp cc 26 March 2025
hubspotutk cc 28 August 2024

Cookies from this group store your preferences you gave while using the site, so that they will already be here when you visit the page after some time.

Cookie name
Description
personalization_id cc 7 September 2024
UserMatchHistory cc 8 October 2022
bcookie cc 8 September 2023
lidc cc 9 September 2022
lang
bscookie cc 8 September 2023
li_gc cc 7 March 2023

This page uses cookies. Cookies are files stored in your browser and are used by most websites to help personalise your web experience. For more information see our Privacy Policy You can manage cookies by clicking "Settings". If you agree to our use of cookies, click "Accept all".

Change region and language
Country of residence
Language