Forex Trading Guide

Different forms of forex trading

Pros and Cons

Written By thinkforexbrokers
Updated: August 18, 2025

Foreign exchange, often called forex or simply FX, plays a massive role in the global financial system. As of April 2022, daily trading volume in the forex market was estimated at around US $7.5 trillion, making it the largest and most liquid financial market in the world. Millions of traders and investors across the globe participate in it every day.

In this Guide to Forex Trading, we’ll walk you through how the market works, the key concepts you need to understand, and the essential terms every beginner should know before stepping into forex trading.

What is forex?

To begin with, forex (foreign exchange) is the global market where currencies are traded. In this market, one currency is always exchanged for another at an agreed price. Because of this, forex prices are shown as pairs, each pair expressing how much one currency is worth compared to the other.

What is a forex pair?

In forex trading, prices are always quoted in pairs because every trade involves buying one currency while selling another.

For example, EUR/USD is the most widely traded forex pair in the world. In this pair, the euro (EUR) is the base currency, while the US dollar (USD) is the quote, or counter, currency.

A price quote tells you how many units of the quote currency are needed to buy one unit of the base currency. With EUR/USD, it shows how many US dollars are required to purchase one euro, or how many you would receive when selling one euro. Price changes in forex pairs are measured in pips, which usually reflect movement in the fourth decimal place of the quote.

Majors, Crosses and Exotics

When it comes to trading currencies in the global forex market, most of the action revolves around three main types of currency pairs. We’ll break them down in this guide, but first, let’s get a bit of perspective.

According to the United Nations, there are about 180 official currencies being used across 195 countries. That’s a lot, right? Out of those, 37 currencies actually have “dollar” in their name — kind of interesting when you think about it. You’ve got familiar ones like the Australian dollar (AUD), Hong Kong dollar (HKD), Singapore dollar (SGD), Canadian dollar (CAD), and of course, the big one — the US dollar (USD).

In forex, currencies are paired up — that’s the basic setup. You’re always trading one for another. These pairs are grouped into three categories, mostly based on how frequently they’re traded and how much volume they pull in. We’ll go over each type so you know exactly what to expect.

Take a look at the table below, and you’ll notice something pretty interesting. Based on data from the Bank of International Settlements, currencies like the Chinese yuan (CNY) and the Hong Kong dollar (HKD) have been gaining serious traction lately. They’re no longer just regional players — both have become widely traded and are starting to compete with the big names in terms of volume.

One standout detail? The NZD/USD pair was the only major one to see a drop in trading volume during the 2022 triennial survey. Kind of surprising, considering how steady it’s been in past years.

We pulled this data from the BIS triennial survey and put together a table that shows the daily trading volumes of the top currency pairs — plus how those numbers have shifted from 2019 to 2022. It gives a pretty good snapshot of what’s been going on in the market lately.

	2019		2022
Forex pair	Volume	% of Total FX Volume	Volume	% of Total FX Volume	Change in Trading Volume (2019 to 2022)
All currency pairs	$6,590bn		$7,508bn
EUR/USD	$1,584bn	24.00%	$1,706bn	22.70%	7.70%
USD/JPY	$871bn	13.20%	$1,014bn	13.50%	16.4%
GBP/USD	$630bn	9.60%	$714bn	9.50%	13.3%
AUD/USD	$358bn	5.40%	$381bn	5.10%	6.4%
USD/CAD	$287bn	4.40%	$410bn	5.50%	42.9%
USD/CHF	$228bn	3.40%	$293bn	3.90%	28.5%
NZD/USD	$107bn	1.60%	$99bn	1.30%	-7.5%
Total Majors	$4,065bn	61.70%	$4,617bn	61.50%	13.6%
USD/CNY	$269bn	4.10%	$495bn	6.60%	84%
USD/HKD	$233bn	3.30%	$178bn	2.40%	-23.6%
EUR/GBP	$131bn	2.00%	$154bn	2.00%	17.6%
USD/KRW	$125bn	1.90%	$128bn	1.70%	2.4%
EUR/JPY	$114bn	1.70%	$103bn	1.40%	-9.6%
USD/INR	$110bn	1.70%	$118bn	1.60%	7.3%
USD/SGD	$110bn	1.70%	$170bn	2.30%	54.5%
USD/MXN	$105bn	1.50%	$103bn	1.40%	-1.9%
USD/SEK	$86bn	1.30%	$93bn	1.20%	8.1%
USD/NOK	$73bn	1.10%	$81bn	1.10%	11%
EUR/CHF	$73bn	1.10%	$68bn	0.90%	-6.8%
USD/BRL	$66bn	1.00%	$63bn	0.80%	-4.5%

The Forex market

Forex isn’t just big — it’s the biggest market in the world by a long shot. According to the 2022 Triennial Central Bank Survey from the Bank of International Settlements, daily global forex turnover hit a massive $7.5 trillion. That’s up from $6.6 trillion in 2019 — a 14% jump in just three years.

To really put that into perspective, let’s compare it to the stock market. Sure, equities have been around longer and get a lot of attention, but forex has grown at a ridiculous pace. It’s blown past every other financial market out there. In fact, in 2022, the total value of the forex market was estimated at a staggering $2.74 quadrillion. Yep — quadrillion. That’s the kind of scale we’re talking about.

Forex Markets – Who are the players?

Forex is one of the few markets that’s truly global — and completely decentralized. Unlike stock trading, where everything goes through big exchanges like the NYSE or the London Stock Exchange, forex doesn’t work like that. It’s an over-the-counter (OTC) market, which basically means trades happen directly between parties, no middleman exchange required. You could be trading with someone across the globe and not even know it.

This market brings together all sorts of players — from central banks and large corporations to individual traders and everyday people. Not every trade is about chasing profit either. Some of it is practical. For instance, a company might need to convert currency to pay for imported machinery, or hedge against currency fluctuations. Even tourists swapping money at the airport are technically participating in forex (just on a much smaller scale).

That said, a big chunk of the action comes from traders — both pros and individuals — looking to make money off currency movements.

Here’s a quick look at who’s involved in the forex game:

Central banks

Central banks play a massive role in the forex market. They don’t just sit in the background — they actively shape how currencies move. One of the biggest things they control? Interest rates. And those rates matter a lot when it comes to how valuable a currency is. Here’s why: when one country has higher interest rates than another, its currency usually becomes more attractive to investors. People want better returns, and higher rates offer that. So, traders often keep a close eye on the interest rate gap between two currencies — it can be a major driver of price movement. But it doesn’t stop there. Central banks can also step in directly and buy or sell their own currency if they feel it’s getting too weak or too strong. For example, if a currency is dropping too low and pushing up inflation, the central bank might buy that currency to boost demand and help stabilize things.

Here is the proportion of daily forex trading per counterparty, as estimated by the Bank of International Settlements.

Forex Counterparties	Total (US$)	Percentage
Reporting Dealers	$3,462bn	46.10%
Other financial institutions	$3,622bn	48.20%
Non-financial customers	$425bn	5.70%
Total	$7,508bn	100%

A few forex statistics

Here are a few statistics on forex that you might find interesting:

Here are the top 20 most traded currencies on one side of a forex trade:

Currency	Code	Daily Volume	Proportion
MAJOR CURRENCIES
US dollar	USD	$6,639bn	88.50%
Euro	EUR	$2,292 bn	30.50%
Japanese yen	JPY	$1,253 bn	16.70%
British pound	GBP	$968bn	12.90%
Australian dollar	AUD	$479bn	6.40%
Canadian dollar	CAD	$466bn	6.20%
Swiss franc	CHF	$390bn	5.20%
New Zealand dollar	NZD	$125bn	1.70%
OTHERS
Chinese yuan	CNY	$526bn	7.00%
Hong Kong dollar	HKD	$194bn	2.60%
Swedish krona	SEK	$168bn	2.20%
Korean won	KRW	$142bn	1.90%
Singapore dollar	SGD	$182bn	2.40%
Norwegian krone	NOK	$125bn	1.70%
Mexican peso	MXN	$114bn	1.50%
Indian rupee	INR	$122bn	1.60%
Russian ruble	RUB	$14bn	0.00%
South African rand	ZAR	$73bn	1.00%
Turkish lira	TRY	$27bn	0.00%
Brazilian real	BRL	$66bn	1.00%
Total		$7,506bn	100.00%

Forex – a 24 hours per day market, 5 days per week

The forex market is truly global — and it pretty much never sleeps. Except for weekends, it runs 24 hours a day, five days a week.

The main trading hubs? London, New York, Sydney, and Tokyo. And since everyone’s in different time zones, the market is always open somewhere on a weekday. For traders in Europe, things usually kick off around 10 PM GMT on Sunday night (when Asia starts trading) and wind down around 10 PM GMT on Friday (when the U.S. session closes).

Because Australia and Japan are in similar time zones, they’re grouped together into what’s called the Asian session. It’s a bit unique — markets open gradually across the region, starting with New Zealand, then Tokyo, followed by Sydney, Hong Kong, and Singapore.

All of this forms the well-known three-session structure in forex trading. Here’s how the global sessions break down:

Session	Main hub	Duration of Session
European session	London	8 am GMT / 5 pm GMT
North American session	New York	1 pm GMT / 10 pm GMT
Asian session	Sydney / Tokyo	12 am GMT / 9 am GMT

Watching the volatility during the session overlaps

If you look at the trading hours for the three sessions, you’ll notice there are times when they overlap — like when London and New York are both open. These overlap windows tend to be the busiest. With more traders in the market at the same time, trading volume picks up, and so does volatility. In other words, things can move fast.

As the Asian session winds down and the European session kicks in, there’s a short overlap—roughly around 7 AM to 8 AM GMT. It’s not the busiest window, but it does mark the transition where trading starts to pick up as Europe comes online.

By the time the European afternoon rolls around, US traders are just settling in — coffee in hand, markets opening. This creates a solid 4-hour overlap between 12 PM and 4 PM GMT, when both the US and European sessions are in full swing. It’s one of the most active — and often most volatile — times of the trading day.

There’s also a quieter stretch in the trading day that’s worth keeping in mind. As the US session winds down around 8–9 PM GMT, there’s usually a dip in activity. That’s because it takes a bit of time before traders in Asia really get going.

There’s a decent time gap — about five hours — between the West Coast of North America and when trading starts in New Zealand, and even longer before Tokyo fully kicks in.

If you look at the volume chart for EUR/USD, the most traded forex pair, you’ll notice clear spikes in volume during the session overlaps — especially during the European–US overlap in the afternoon. You’ll also see a noticeable dip as the US session hands over to Asia.

Forex speculation

Now let’s dive into the part most people are curious about — how to actually trade forex. In other words, how to speculate on currency movements and (hopefully) make a profit.

A simple forex trade

Let’s say a trader buys EUR/USD when it’s trading at 1.2000. That means they’re using $1.20 to buy €1. Now, if the price later climbs to 1.2500 and they decide to sell, they’d get $1.25 for that same €1. That’s a profit of 5 cents — just from that move.

This is what speculating in forex is all about. Traders are trying to predict whether a currency pair will go up or down in value. You can either buy (that’s called going long) or sell (going short), depending on which way you think the market will move.

So, if you think the euro is going to get stronger compared to the dollar, you’d buy EUR/USD. But if you believe the euro’s going to lose value against the dollar, then you’d sell EUR/USD instead.

A forex quote

It shows that it costs $1.18196 to buy €1 — in other words, you’d need 1.18196 US dollars to get 1 euro. But if you look closely, you’ll notice there are actually two prices listed. That’s because a forex quote always comes as a pair of prices — one for buying, and one for selling.

What is the spread?

The two numbers you see in a forex quote are called the bid price and the ask price. The bid is the price at which you can buy euros, and the ask is the price at which you can sell them.

The difference between the bid and ask prices is called the spread. This tiny gap is how forex brokers or dealers make their money — it’s basically their fee for handling the trade.

In this quote, the spread is 0.00011, which equals 1.1 pips. But what exactly does that mean?

What is a pip?

Forex prices are measured in something called pips, short for “percentage in point.” In most currency pairs, a pip is the fourth decimal place — so if EUR/USD moves from 1.1853 to 1.1857, that’s a 4-pip increase.

Some brokers quote prices to a fifth decimal place, which is just one-tenth of a pip. They do this because their spreads can be variable. For example, if the price moves from 1.18376 to 1.18293, that’s a drop of 8.3 pips.

There’s one big exception: yen pairs. When you’re trading something like USD/JPY, a pip is the second decimal place, not the fourth. So if the price goes from 110.52 to 110.57, that’s a 5-pip move.

The use of leverage

Compared to other markets, forex doesn’t move all that wildly. In the stock or crypto world, seeing prices jump or drop 10% in a day isn’t unusual at all. But in forex? A 1% or 2% move in a single day is considered massive. Most of the time, currency pairs barely shift more than 0.5% daily.

Just to give you an idea — if EUR/USD suddenly moved 10% in one day, it would probably signal some global meltdown. That kind of move would shake the entire financial system.

So, if forex moves so little, how do traders actually make money? The answer is leverage — and that’s where things get interesting.

Lots

In forex, trade sizes are measured in “lots.” On a standard account, 1 lot equals 100,000 units of the base currency.

So, if you buy 1 lot of EUR/USD at 1.1850, you’re actually trading with $118,500. In this case, a 1-pip move — which is the fourth decimal place — would equal a $10 change in your position.

Let’s say the price goes up by 22 pips, and you close the trade at 1.1872. Your position would now be worth $118,720, giving you a profit of $220 on that trade.

Margin & Leverage

Without leverage, most traders wouldn’t have enough capital to control positions as large as 100,000 units of currency. That’s where leverage comes in — it gives you access to much bigger trades with a much smaller deposit.

How much leverage you can use depends on where you’re trading. In stricter regions like Europe, it’s usually capped at around 1:30. But in other places — like Mauritius, Vanuatu, or the Bahamas — leverage can go much higher, sometimes into the hundreds.

For example, with 1:30 leverage, you’d only need to put up about 3.33% of the trade’s total value. So to open a $100,000 position, you’d just need $3,300 in your account.

The risk of trading forex on margin

That said, trading larger positions also means taking on a lot more risk. As mentioned earlier, when you’re trading 1 lot (100,000 units), every 1-pip move in EUR/USD is worth $10.

Even though forex pairs usually don’t move much in percentage terms, with leverage in play, a 40 or 50 pip swing can happen fast — sometimes in just a few minutes. And if you’re not using proper risk management, like setting a stop-loss, it doesn’t take much to wipe out your trading account.

Different forms of forex trading

There are a few different ways you can trade forex, and it’s important to understand the differences. You can trade what’s called the spot market, where you’re actually buying and selling the currency itself. Or, you can trade derivatives, which are contracts that let you speculate on price movements without owning the actual currency.

Each method has its own features and quirks — and we’ll break them down for you next.

Individual traders (the retail trader)

Individual traders, also known as retail traders, get access to the forex market through brokers. These brokers act as the middlemen between regular traders and the big institutions, like major banks. The banks provide the liquidity, and the brokers pass it along to their clients. Brokers also allow retail traders to use margin, which means they can trade with much more money than they actually have in their account. But while margin can boost potential profits, it also increases risk — a lot. Without proper risk management, losses can pile up quickly.

Forex Forwards and Futures

Forex forwards and futures are both ways to trade currencies at a set price on a future date — but they work a bit differently. A forward is a private deal between two parties. They agree to exchange a specific amount of currency at a fixed rate on a future date. These contracts are flexible but aren’t traded on any exchange — it’s all done off the books, so to speak. Futures, on the other hand, are standardized contracts traded on public exchanges. The terms are fixed, and they’re regulated, which adds a layer of transparency. The main difference? Forwards are private and customizable, while futures are public and standardized.

Forex Options

Forex options give you the right — but not the obligation — to buy or sell a currency at a set price on a specific date in the future. They’re a lot like futures, but with one key difference: with futures, you’re required to go through with the trade. With options, you’re not. If the market moves in your favor, you can choose to exercise the option. If not, you can just let it expire — and the only thing you lose is the premium you paid for the option in the first place. This setup helps limit risk, which is why some traders use options as part of a broader strategy.

Forex Swaps

Forex swaps are agreements between two parties to exchange interest payments in different currencies over a set period of time. These deals usually happen between large companies or institutions and are often used to manage long-term currency risk. Let’s say a U.S. company needs euros for a project in Europe. Instead of borrowing euros directly (which might be expensive), it could borrow in U.S. dollars and then use a currency swap with a European company that needs dollars. They’d exchange both interest and principal payments, helping each other get better loan terms in their local markets. Swaps are more of a long-term strategy, mainly used for hedging or getting more favorable interest rates.

This table lays out the level and proportion of daily volumes of the various forex trading instruments.

FX Instruments	Total (US$)	Percentage of Total Forex Volume
Spot	$2,107bn	28.10%
Outright forwards	$1,163bn	15.50%
FX Swaps	$3,810bn	50.70%
Currency Swaps	$124bn	1.70%
FX Options	$304bn	4.10%
Total market	$7,508bn	100.00%

How to be a forex trader?

Now let’s take you through the steps of becoming a forex trader:

Learn your trade

Learn your trade. Before diving into forex trading, take the time to really understand what you’re getting into. Get familiar with how things like spreads, leverage, and volatility work — and how the forex market moves in general. Start by reading trusted online resources, checking out well-reviewed books, or exploring the educational content offered by brokers. All of this builds a strong foundation to grow your trading skills. And don’t skip over risk management. Learn how to use tools like stop-loss orders and make sure you understand how to size your positions properly — it can make all the difference between staying in the game and wiping out early.

Set up an account with a forex broker

Set up an account with a forex broker. But before you jump in, take some time to find the right fit for you. Every broker is different — some offer lower fees, others focus on trading tools or research, and some are known for great customer support. Think about what matters most to you as a trader, whether it’s tight spreads, helpful educational content, or a user-friendly platform. Sites like BestBrokers.com can help you compare your options and make a smart choice.

What is a forex broker?

You could take your dollars or euros to a local currency exchange and trade them for another currency. But traditional exchange bureaus often have poor rates, high fees, limited hours, and no option to use leverage or aim for higher returns.

Thankfully, there’s a simpler way for individuals to access the forex market and try to earn a profit. But they can’t do it alone. Traders need a middleman to link them to the market. This middleman is known as a forex trading provider, or simply a forex broker.

A broker gives the trader access to a trading platform and the forex market. The trader can then speculate on currency movements. Brokers may also offer leverage, which increases exposure and profit potential. In return, they charge a fee—either through spreads, commissions, or both.

Different Styles of Forex trading

There are many different ways in which traders can dip their toes into the forex market. Some look to trade with an extremely short-term outlook, whilst others like to play the long game.

Scalping: Think of scalpers as trying to capture tiny profits from numerous small price fluctuations throughout the day, like repeatedly skimming small amounts off the top.
Day Trading: Day traders aim to profit from intraday price movements, closing all their positions before the end of the trading day to avoid overnight risks, similar to completing a full workday of trading activity.
Swing Trading: Swing traders look to capture ‘swings’ in price over a few days, riding short-term trends and often holding positions overnight, like surfing waves in the market.
Trend Chasing: Trend followers identify established trends and aim to ride them for a more extended period, capitalizing on momentum, similar to following a prevailing current.
Position Trading: Position traders take a long-term view, often aligning their trades with fundamental economic trends and holding positions for months or even years, like investing in a long-term growth stock.

Let’s take a look at the various methods you could employ.

Trading style	How often do you trade	Length of time holding a position	Idea generation
Scalping	Many per day – Positions opened and closed very quickly	A few seconds to minutes	Short-Term Technical Analysis
Day trading	Several per day	Several minutes to hours	Data / Newsflow / Technical Analysis
Swing trading	Several per week	A few days	Technical Analysis
Trend chasing	Several per month	A few weeks	Technical analysis
Position trading	A few per year	Months, maybe years	Fundamentals

What moves the forex markets?

Forex markets are constantly shifting, influenced by a wide range of factors. A key driver is the outlook for one currency compared to another, which affects how currency pairs move. Knowing what causes these price changes — and being able to anticipate them — can make or break your trading success.

Below are some of the main forces that drive the forex market:

Pros and Cons of forex trading

Before diving into forex trading, there are a few things worth thinking about. It’s easy to see why so many retail traders are drawn to the market, but it’s not without its risks.

Below are some of the main pros and cons of trading forex:

Trade forex 24 hours per day, five days a week – markets are open every hour, Monday to Friday. This allows traders to trade markets when they want, day or night.
Go long or short – when trading forex, you can speculate on the price moving higher or lower. Whichever way you think the market direction is headed, you can profit. It’s your call.
Lower fees – Trading in equities, bonds and funds (such as ETFs and mutual funds) will often incur extra fees and commissions, possibly even on top of the spreads charged. If you do your research and pick the right broker, trading forex can be an asset class that keeps your trading costs much lower than other assets. Commissions and extra fees are not typically a feature of trading forex (unless you choose a zero-spread account that specifically does this to reduce costs even further).
Forex markets are highly liquid – the huge number of market participants enables tight spreads and reduced gapping. Tight spreads on markets help keep the costs of trading low. With forex, you are trading in a truly global market, meaning that with so many participants, this reduces the potential for slippage and gaps when orders are being filled.
Trade forex on margin – gives you the exposure to make bigger profits. Brokers tend to offer higher margin levels on forex instruments. With the high levels of liquidity and fast-moving markets, trading forex on margin enables traders to generate returns faster.

Margin trading can be just as risky as it is beneficial. Margin trading in combination with highly volatile markets means that high leverage can lead to bigger and quicker losses.
Overnight financing charges – arguably the hidden costs of forex trading. Traders are often (but not always) charged just for holding positions open overnight. This is in contrast to investing in equities or bonds which have no financing charges and periodically pay a yield (either dividends or interest) for holding the asset.
The disadvantage of being a small fish in a big pond – forex markets are dominated by the big banks who have access to state-of-the-art technology, research and can influence prices with their positions. Forex retail traders can feel like they are being buffeted around by the bigger players in the game. However, just because the banks are bigger, it does not mean they are always right.

Conclusion

Forex trading has become a very popular way to invest. With the use of margin, skilled traders can turn it into anything from a solid side income to a full-time career.

In this guide, we’ve covered what forex is, how the market works, and how to get started. Most importantly, we’ve stressed the value of doing your research and approaching trading with a clear, informed mindset.

Wishing you the best of luck on your forex trading journey!