Quite simply, forex trading is the act of buying and selling currencies. This is the world’s largest financial market with a daily turnover of $5 trillion and it involves many people – and many currencies. Because you are always buying one currency using another currency, you trade ‘currency pairs’.
Want a visual explanation?
Take a look at this short video:
How can you take advantage of exchange rate changes?
Exchange rates change all the time, and forex traders attempt to take advantage of these changes. Here’s a quick example:
Let’s say you travel abroad and you go to an exchange and use $500 to buy euros. After a week, you come back (without spending a single euro) and exchange your euros back to dollars – but you receive $505, because during the week, the exchange rate changed. This is a profit of 5 dollars, which you made by trading currencies.
Of course, nowadays you don’t need to leave the house to invest in the price of currencies – and you don’t even need to actually buy the currencies. Thanks to online forex trading anyone can invest in the price of different currencies from home - or even from their smartphone - and take advantage of changes in price.
Which currencies can you trade?
There are many types of currencies that you can invest in with iFOREX – in fact, there are over 80 pairs to choose from. Let’s take a close look at some of your options.
- Majors
- Cross pairs
- Exotics
- The most traded currency pairs are called ‘majors’ and they compose about 85% of the entire foreign exchange market. Note that they all include the USD. These major pairs are:
- Cross pairs (AKA ‘Crosses’) Currency pairs that do not include the US Dollar are commonly known as ‘cross currency pairs’. A few examples will be
- Exotic currency pairs are made up of one major currency and a currency of an emerging economy. Examples would be
EUR/USD
USD/JPY
GBP/USD
AUD/USD
USD/CHF
NZD/USD
USD/CAD
GBP/JPY
JPY/CAD
USD/ZAR
USD/HKD
For the full list of the currency pairs you can trade at iFOREX, please visit our trading conditions page.
Understanding Pips
Pip stands for Percentage In Point. For most currency pairs, it corresponds to the movement of one unit of the fourth decimal digit in a rate, but there are exceptions like the Japanese Yen pairs, where a pip corresponds to the movement of one unit of the second decimal digit in a rate.
Confused? Here’s a quick example:
If the EUR/USD moves from 1.1050 to 1.1051,
this .0001 rise in value is one Pip.
When can you trade forex?
The forex market operates 24 hours a day and is commonly separated into four sessions: The Sydney session, the Tokyo session, the London session, and the New York session.
Leverage currency trading (as CFDs)
In the past, only large investors participated in currency trading, but nowadays anyone can trade currencies in the form of CFDs from home – and you don’t need to be rich to invest. Thanks to a unique tool called ‘leverage’ you can open large deals with a relatively small investment. For example, with a €100 investment, you can open a deal of up to €40,000, using leverage of 400:1.
This means that for every euro you invest, we give you up to €400 in trading power. And remember: Because of iFOREX's Negative Balance Protection you can never lose more than your initial investment – your account will never go into minus, regardless of the leverage you choose.
How to open your first currency deal
Are you ready to open your first currency deal? Great!
You can do so in three simple steps.
- Choose a currency
Let’s say you want to trade EUR/USD, for example. If the price of one euro is $1.1200, with a €100 investment, you could have bought $112, without leverage.
- Choose your deal size
By using leverage you can open a deal worth up to 400 times your initial investment. For example, with a €100 investment, you can buy €40,000 worth of dollars, using 400:1 leverage.
€100 × 400 = €40,000
- Choose direction
When you trade currencies with iFOREX, you can open trades even when you think prices will go down. In this example though, let’s assume you think the price will go up. Choose ‘Buy’. Now what?
Close your deal and collect the profit
Let’s say the rate of the EUR/USD rose - meaning that the price of the euro increased by 0.01 - and you decide to close your deal.
This is a change of 0.01 for €40,000 deal, meaning a profit of $400 with a €100 investment.
The key features of forex trading in the form of CFDs with iFOREX
- Take part in the largest financial market in the world
- Open large deals with a relatively small investment
- Invest in a wide variety of currency pairs
- Receive free access to useful education resources
- Benefit from free training with a trading coach
- Trade in your free time from your PC or mobile device
FAQs
The foreign exchange (forex or FX) market is a global marketplace for exchanging national currencies. Because of the worldwide reach of trade, commerce, and finance, forex markets combine to be the world's largest and most liquid asset markets. Currencies trade against each other as exchange rate pairs.
What is forex trading in simple terms? ›
Forex trading, also known as foreign exchange or FX trading, is the conversion of one currency into another. FX is one of the most actively traded markets in the world, with individuals, companies and banks carrying out around $6.6 trillion worth of forex transactions every single day.
How do you explain forex to a beginner? ›
Forex, foreign exchange, or simply FX, is the marketplace where companies, banks, individuals and governments exchange currencies. It's the most actively traded market in the world, with over $5 trillion traded on average per day.
Is trading forex really worth it? ›
Forex trading may make you rich if you are a hedge fund with deep pockets or an unusually skilled currency trader. But for the average retail trader, rather than being an easy road to riches, forex trading can be a rocky highway to enormous losses and potential penury.
How much do forex traders make a month? ›
Forex Trader Salary
| Annual Salary | Monthly Pay |
|---|
| Top Earners | $192,500 | $16,041 |
| 75th Percentile | $181,000 | $15,083 |
| Average | $101,533 | $8,461 |
| 25th Percentile | $57,500 | $4,791 |
Forex trading is the ultimate form of gambling. We get to review past price action before putting on a trade. Can you imagine getting to see the dealer's hand before making a decision at the casino? That's exactly what we can do in Forex.
Do forex traders make money? ›
The answer, simply, is yes. Day trading is profitable. How long does it take to become profitable?
Can I teach myself forex? ›
Yes, you can learn forex trading on your own, and Ava Academy's free online courses provide a valuable starting point.
What is the best currency to trade in forex as a beginner? ›
Best Currency Pairs to Trade for Beginners
- EUR/USD. Traders who are new to forex can benefit from the low spreads, low volatility and liquidity features of EUR/USD, one of the most popular currency pairs in the world. ...
- GBP/USD. ...
- USD/JPY. ...
- USD/CHF. ...
- AUD/USD.
It takes commitment and hard work to become proficient in forex trading. Most traders say it takes at least six months to a year. Start by learning the fundamentals and comprehending currency pairs, market dynamics, and trading strategies from reliable sources.
Now, it's not to say that trading Forex for a living is impossible; it is certainly attainable, but it usually requires getting knowledge and experience, as well as opening huge accounts with hundreds of thousands of dollars in size.
When not to trade forex? ›
There will be times where a currency is moving differently from normal. Perhaps price is spiking and you don't know why. This is a good time to stay out of the market. If you can't understand why price is behaving in a certain way, it is usually due to some unscheduled news that has been released or leaked.
Is forex harder to trade than stocks? ›
The forex market is far more volatile than the stock market, where profits can come easily to an experienced and focused trader. However, forex also comes with a much higher level of leverage and less traders tend to focus less on risk management, making it a riskier investment that could have adverse effects.
Can I trade forex with $100? ›
Even with $10, $100, $1,000, or a $15,000 funded account, you can begin to trade Forex and develop a forex income. Work your way up to those figures and can start building your account. Forex trading, also known as foreign exchange trading, is the practice of buying and selling world currencies.
How much do forex traders get taxed? ›
How Am I Taxed for Forex Trading? If you trade 1256 contracts, your trades are taxed at 60% long-term capital gains and 40% short-term capital gains. If you're trading 988 contracts, you treat losses and gains as ordinary (taxed at your income tax bracket level).
How many times can you trade forex in a day? ›
How much you trade is up to you: you could stick to once per session or less, or open positions frequently as you spot new opportunities. But whatever you choose, forex day trading requires focus and discipline in fast-changing markets.
What is forex trading for dummies? ›
Forex explained
The aim of forex trading is simple. Just like any other form of speculation, you want to buy a currency at one price and sell it at higher price (or sell a currency at one price and buy it at a lower price) in order to make a profit. We all trade forex if we go on holiday abroad.
What is forex in layman's terms? ›
The foreign exchange market, commonly referred to as the Forex or FX, is the global marketplace for the trading of one nation's currency for another. The forex market is the largest, most liquid market in the world, with trillions of dollars changing hands every day.
What is an example of a forex trade? ›
Example of Forex Transactions
Assume a trader believes that the EUR will appreciate against the USD. Another way of thinking of it is that the USD will fall relative to the EUR. The trader buys the EUR/USD at 1.2500 and purchases $5,000 worth of currency. Later that day the price has increased to 1.2550.
Is forex trading suitable for beginners? ›
Forex trading offers beginners a unique opportunity to enter global markets with relatively low capital requirements and flexibility in terms of trading hours. However, it is essential for beginners to be fully aware of the risks involved, including how leverage amplifies both gains and losses.
