What is forex trading?

Forex meaning: the market for exchanging currencies

“Forex” is short for foreign exchange, also written FX. The BIS Triennial Survey measured average turnover of $9.6 trillion a day in April 2025, more than any stock market. The US dollar was on one side of 89% of trades, the euro of 28.9%, the yen of 16.8% and sterling of 10.2%; the shares add up to 200% because every trade has two currencies.

Most of that volume is banks, funds and companies hedging payments. Sales desks in the United Kingdom handled 38% of global turnover, the largest share of any country. Retail traders are a small part of the market and reach it through brokers.

How a currency pair is quoted

The first currency in a pair is the base, the second is the quote. EUR/USD at 1.1000 means one euro buys 1.1000 dollars. If the rate rises to 1.1050, the euro has gained 50 pips against the dollar.

A broker shows two prices: the bid, at which you sell, and the ask, at which you buy. With a bid of 1.0999 and an ask of 1.1000 the spread is 1 pip, and a new position starts 1 pip in the red.

Pip value is in the quote currency; your platform converts it to your account currency at the current rate.

How a forex trade works, step by step with numbers

Say you buy 0.1 lot of EUR/USD, which is 10,000 euros, at an ask of 1.1000. The position is worth USD 11,000. At the 1:30 retail cap the broker sets aside USD 366.67 of your money as margin.

If the bid rises to 1.1050 and you close, you gain 50 pips × USD 1 = USD 50. If it falls to 1.0950 instead, you lose USD 50, about 14% of the margin set aside. The 1-pip spread you paid at the start is already inside both results.

Held past the daily rollover, the position is also charged or paid an overnight swap, which depends on the interest rates of the two currencies and the broker’s mark-up.

• Pick the pair and the direction: buy (long) or sell (short).
• Choose the size in lots: 1 lot = 100,000 units of the base currency, 0.01 lot = 1,000.
• Set a stop-loss at the price where your idea is wrong, before you open the trade.
• Close the trade, or let the stop or the broker’s margin close-out close it.

Who is on the other side of your trade

With a CFD or spread bet your contract is with the broker company, not with another trader. The broker either keeps the opposite side of your position or passes it on to banks and other liquidity providers. When it keeps the risk, your loss is its gain, which is why regulators require it to manage that conflict.

Raw or ECN accounts quote prices closer to those providers and charge a commission per lot instead of a wider spread. The account name alone does not tell you how orders are handled; the order execution policy in the broker’s legal documents does.

What a forex broker is, and which company you sign with

A forex broker is a firm licensed to offer currency CFDs or spread bets to the public. One brand usually runs several companies: 17 of the 20 brands in our data have at least one company licensed offshore, and 19 have a company supervised by a Tier 1 regulator such as the FCA, ASIC or CySEC that takes retail clients.

Your country decides which company opens your account, and that company sets your leverage cap, your protection against a negative balance and the compensation scheme, if any. Check its licence number on the regulator’s own register before you deposit.

What a forex trade costs

Four costs make up the price of a trade: the spread, a commission on raw accounts (Pepperstone, for example, publishes GBP 2.25 per lot per side on its Razor account), the overnight swap and a currency conversion fee when the pair is not in your account currency. Compare spread plus commission per lot, not the headline spread.

• Spread: 1 pip on 1 lot of EUR/USD = USD 10.
• Commission: charged per lot, once to open and once to close.
• Swap: charged or paid for each night a position stays open.
• Conversion: when profits and losses are in a currency other than your account’s.

What forex hedging means

Hedging is opening a position that offsets another one. A company that will receive euros in three months may sell EUR/USD now, so a fall in the euro is covered by the gain on the trade. A retail trader who holds a buy and a sell on the same pair has zero net exposure but still pays two spreads and, overnight, two swaps.

How many retail forex traders lose money

Brokers regulated in the UK and the EU must publish the share of their retail accounts that lose money. In our data the published figures run from 58.9% at Interactive Brokers (U.K.) Limited (Interactive Brokers) to 88% at Pepperstone Markets Kenya Limited, across 37 figures checked up to 19 Oct 2026.

Forex trading does not suit money you will need for bills, debt repayment or savings goals, and it does not suit anyone who cannot watch open positions or accept losing the whole deposit.