What Is Forex Trading? A Beginner's Guide to How It Works, When to Trade and How Much You Need

Forex (foreign exchange) is the buying and selling of currencies. The EUR/USD and USD/JPY you see on a trading platform are "currency pairs". Forex is the largest financial market in the world, trades almost 24 hours a day, 5 days a week, and is where many people first start trading.

What is forex? How to read a quote

A currency pair quote tells you how many units of the second currency one unit of the first currency is worth.

• EUR/USD 1.1000: 1 euro buys 1.1 US dollars
• USD/JPY 150.00: 1 US dollar buys 150 yen

Buying EUR/USD means betting the euro strengthens against the dollar; selling means betting it weakens. Unlike buying shares, you can trade both directions.

Beginners usually start with the high-volume major pairs, such as EUR/USD, GBP/USD, USD/JPY and AUD/USD. With so many traders, spreads on these pairs are usually tighter.

How it works: pips, lots and pip value

• Pip: for most pairs 1 pip is 0.0001, for example EUR/USD moving from 1.1000 to 1.1001; for yen pairs 1 pip is 0.01
• Lot: 1 standard lot = 100,000 units of the first currency, 0.1 lot is 10,000 units, 0.01 lot is 1,000 units
• Pip value: for 1 standard lot of EUR/USD, a 1 pip move is worth about 10 dollars; about 1 dollar for 0.1 lot; about 0.1 dollar for 0.01 lot

Example: you buy 0.1 lot of EUR/USD and price rises from 1.1000 to 1.1030. That is 30 pips, a profit of about 30 × 1 = 30 dollars. If it falls 30 pips instead, you lose 30 dollars.

When can you trade? (UTC+8, US winter time)

Forex opens on Monday morning and closes on Saturday morning. In winter time most platforms open around 6:00 on Monday morning and close around 6:00 on Saturday morning, UTC+8; check your platform's notice. A trading day has three main sessions:

• Asian session: about 08:00 to 17:00. The yen and Australian dollar are more active; other pairs are usually quieter
• European session: about 16:00 to 1:00 after midnight. Volume picks up clearly
• US session: about 21:00 to 6:00 the next morning. Major US data is mostly released at 21:30

The overlap of Europe and the US, 21:00 to 1:00, is usually the busiest time, with more opportunity and more risk. For the full table, see US winter time trading hours in UTC+8.

How much money do you need?

Forex is traded on margin, so you do not pay the full value. With 1:100 leverage and EUR/USD at 1.1000:

• 1 standard lot is worth 110,000 dollars, so the margin is about 1,100 dollars
• 0.01 lot is worth 1,100 dollars, so the margin is about 11 dollars

Minimum deposits differ by platform. A better question than "what is the minimum?" is "how much can I lose on one trade?" A common rule is to risk at most 1% of the account per trade: on a 1,000 dollar account, that is 10 dollars. A 0.01 lot trade with a 30 pip stop risks about 3 dollars, well within the limit. For how to work out lot size, see risk 1% per trade: position sizing.

4 things to do before you start

1. Practise on a demo account: get used to orders, stops and spreads before using real money
2. Start with 0.01 lot: get a feel for how far price moves in a day
3. Use a stop loss on every trade: one major data release can move a pair dozens of pips. See where to put your stop loss
4. Check the economic calendar: know what data is due today and when, on the economic calendar

To see key levels and trade ideas for the major pairs every day, download the Borearis app.

Borearis Research Team · For information only, not investment advice. Trading involves risk.