Forex CFD trading

Forex trading is the process of trading one currency against another. It allows you to trade worldwide currency pairs such as EUR/USD, GBP/USD and USD/JPY within a single global market. Each trade reflects how one currency is expected to move relative to another.

The forex market is the largest financial market in the world, with around $7.5 trillion traded each day, making it one of the most liquid markets globally. It operates five days a week, across major financial centres worldwide.

Currency prices change constantly, influenced by supply and demand, economic data releases, central bank policies and global events. These ongoing price movements are what traders follow when placing trades.

In forex trading, currencies are always traded in pairs. This means you are trading one currency against the value of another, rather than buying a single currency on its own.

A currency pair consists of two currencies:

• the base currency, which comes first

• the quote currency, which comes second

For instance, in the EUR/USD pair, the euro (EUR) is the base currency and the US dollar (USD) is the quote currency. If EUR/USD is priced at 1.1000, it means that 1 euro is worth 1.10 US dollars.

When you place a trade, you are taking a position on how the base currency will move compared to the quote currency. If the price rises, the base currency is strengthening against the quote currency. If the price falls, it is weakening.

Currency pairs are commonly grouped into:

• Major pairs, such as EUR/USD, GBP/USD and USD/JPY. These are the most traded currency pairs in the market, all include the US Dollar, and typically have high liquidity.

• Minor pairs are those that do not include the US dollar but the currencies of other major economies. Examples include EUR/GBP, EUR/JPY and GBP/JPY.

• Exotic pairs involve a combination of a major currency with a currency from an emerging economy. Examples include USD/TRY, EUR/ZAR and USD/MXN. Exotic pairs tend to have lower liquidity and higher volatility.

Each group behaves differently in terms of liquidity and volatility, which is why understanding currency pairs is an important first step in forex trading.

A pip, short for price in point, is the standard unit used to measure price movements in forex trading. For most currency pairs, a pip is the fourth decimal place in the price.

For example, if EUR/USD moves from 1.1000 to 1.1001, the price has moved by one pip.

For currency pairs that include the Japanese yen, such as USD/JPY, a pip is the second decimal place. A move from 145.20 to 145.21 is also one pip.

A pipette is a fractional pip. It represents one-tenth of a pip and is shown as the fifth decimal place for most currency pairs, or the third decimal place for yen pairs. Modern trading platforms display prices this way to give more precise pricing.

For example, EUR/USD moving from 1.10000 to 1.10001 is a movement of one pipette.

Ten pipettes equal one pip.

Pips and pipettes are used to measure price changes, calculate trading costs and understand profit or loss on a trade, which is why they are essential concepts for anyone trading forex.

The spread is the difference between the buy price and the sell price of a currency pair. It represents one of the main costs of trading forex.

When you look at a currency pair on your trading platform, you will always see two prices. The lower price is the sell price and the higher price is the buy price. The spread is the small gap between these two prices.

For example, if EUR/USD shows a sell price of 1.1000 and a buy price of 1.1002, the spread is 2 pips.

Spreads can vary depending on several factors, including market conditions, liquidity and the currency pair being traded. Major currency pairs, such as EUR/USD or GBP/USD, usually have tighter spreads due to higher trading volume. Less actively traded pairs may have wider spreads.

A tighter spread means lower trading costs, which is why many traders pay close attention to spreads when choosing a broker and a trading account.

Leverage is a feature that allows you to trade a larger position in the market with less of your own capital. It works by increasing your exposure to the market via your broker.

For example, with a leverage of 1:100, a deposit of 1,000 allows you to open a position worth 100,000. This means that even small price movements can have a noticeable impact on your trade.

Leverage has the ability to raise both profits and losses. If the market moves against your position, you may suffer losses. As a result, leverage should be handled cautiously and with adequate risk management.

Different instruments and account types have different leverage limits, and these limits can vary depending on regulatory requirements.

Margin is the amount of money reserved from your account to open and maintain a leveraged trade.

When you place a trade, your broker requires a portion of your account balance as margin. This margin acts as a security deposit, allowing you to open a trade that is larger than your available capital.

For example, if you open a position worth $100,000 with leverage of 1:100, the required margin would be $1,000. As long as you have enough available margin, the position can remain open.

Margin is not a fee, and it is not lost when you open a trade. It remains reserved in your account while the position is open and is released once the position is closed.

If the market moves against your position and your available margin falls below the required level, your broker may issue a margin call or automatically close positions to limit further losses.

The forex market is open 24 hours a day, five days a week, from Monday to Friday.

This is because forex trading takes place in a single global market that operates across different time zones. As trading activity ends in one major financial centre, it begins in another, allowing the market to remain open almost continuously during the week.

The trading sessions are:

• Sydney

• Tokyo

• London

• New York

The market opens on Monday morning in the Asia-Pacific region and closes on Friday evening in New York. While prices are available throughout the trading week, activity and volatility can vary depending on which session is active and whether sessions overlap.

Many traders pay attention to session overlaps, such as when the London and New York sessions are open at the same time, as these periods often see higher trading volume.

Forex prices move based on supply and demand for different currencies. When demand for a currency increases, its value tends to rise. When demand falls, its value tends to weaken.

Several factors could influence currency prices, including:

• Economic data, such as inflation, employment figures and economic growth. Strong data can support a currency, while weaker data may put pressure on it.

• Central bank decisions, including interest rate changes and monetary policy announcements. These can have a significant impact on currency values.

• Political and global events, such as elections, geopolitical developments or unexpected news, which can increase uncertainty and market volatility.

• Market sentiment, which reflects how traders and investors feel about risk and future economic conditions. Shifts in sentiment can cause currencies to move even without major news.

• Supply and demand flows, including trade activity and capital movements between countries.

Because these factors are constantly changing, forex prices can move quickly. Understanding what drives price movements can help traders make more informed decisions and manage risk more effectively.

Learning forex trading takes time, practice and a structured approach. There is no single path, but most traders build their knowledge by combining education with hands-on experience.

A common starting point is learning the basics, such as how currency pairs work, what pips and spreads are, and how leverage and margin affect trades. This foundation helps you understand how the market operates before placing trades.

Many traders then use educational resources such as articles, video tutorials, webinars and trading guides to develop their skills. These resources can help you learn technical analysis, understand economic news and build a simple trading strategy.

Practice plays a key role in the learning process. Using a demo account allows you to trade in real market conditions without risking real money. This helps you become familiar with the trading platform, test ideas and learn how to manage trades calmly.

As your confidence grows, you can continue learning by reviewing your trades, refining your approach and staying informed about market developments. Successful forex trading is usually the result of continuous learning and disciplined practice rather than quick results.

Yes, you can practice forex trading without risking real money by using a demo account.

A demo account lets you trade in real market conditions using virtual funds. Prices, spreads and execution behave the same way as they do on a live account, which allows you to experience how forex trading works without financial risk.

Using a demo account is a good way to learn how the trading platform functions, test different trading ideas and understand how market movements affect open positions. It also helps you practice managing trades and reacting to price changes in a calm environment.

There is no time limit on most demo accounts, so you can practice at your own pace and move to live trading only when you feel ready and confident.