The foreign exchange market in one paragraph
The foreign exchange (forex, or FX) market is where the world's currencies are exchanged. Banks, companies, funds and governments use it every day to pay for imports, hedge future payments and move capital between countries. It has no single central exchange: prices are formed between banks and liquidity providers around the world, which is why the market runs 24 hours a day from Monday morning in Asia to Friday evening in New York.
Retail traders take part through a broker. Most do not exchange physical currency at all — they trade contracts whose value follows the exchange rate, and close them before any delivery would be due. On AlphaFX Pro these are contracts for difference (CFDs), covered in our guide to CFD trading.
Currency pairs and how to read a quote
Currencies are always quoted in pairs, such as EUR/USD. The first currency is the base, the second is the quote. A price of 1.1000 means one euro costs 1.1000 US dollars. If the price rises to 1.1050, the euro has strengthened against the dollar; if it falls to 1.0950, it has weakened.
Every quote has two prices. The bid is the price you can sell at, the ask (or offer) is the price you can buy at. The ask is always slightly higher, and the gap between them is the spread — the main cost of a trade.
| Group | Examples | What they are |
|---|---|---|
| Majors | EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, USD/CAD | The most traded pairs, all against the US dollar. Usually the tightest spreads. |
| Minors (crosses) | EUR/GBP, AUD/JPY, EUR/CAD, CHF/JPY | Pairs between major currencies that do not include the dollar. |
| Exotics | Pairs with currencies of smaller or emerging economies | Less liquid, so spreads are wider and prices can move more sharply. |
Going long and going short
Because you always trade one currency against another, you can take a view in either direction. Buying EUR/USD (going long) means you expect the euro to rise against the dollar. Selling EUR/USD (going short) means you expect it to fall. Your result is the difference between the price you open at and the price you close at, multiplied by the size of your position.
- 01
You expect EUR/USD to rise
You buy 0.1 lot at 1.1000.
- 02
The price moves to 1.1030
That is a 30-pip move in your favour. At 0.1 lot each pip is worth about $1, so the position is up about $30, before costs.
- 03
If it had fallen to 1.0970 instead
The same 30 pips would be a loss of about $30. Moves against you count exactly the same way.
Pips, lots and leverage — the three numbers that size every trade
- A pip is the standard unit of price movement — 0.0001 for most pairs, 0.01 for pairs quoted in Japanese yen.
- A lot is the size of the trade. One standard lot is 100,000 units of the base currency; the smallest size on AlphaFX Pro is 0.01 lot (1,000 units).
- Leverage lets you open a position larger than the money you put up as margin. At 1:100, a $1,000 margin deposit controls a $100,000 position.
Leverage magnifies losses just as much as gains, and it is the main reason beginners lose money quickly. Our guide to pips, lots and leverage works through the numbers in detail.
What moves exchange rates
- Interest rates and central bank decisions — higher expected rates tend to attract capital to a currency.
- Economic data — inflation, employment, growth and trade figures released on a published calendar.
- Risk sentiment — in uncertain times money often moves toward currencies seen as safer, such as the US dollar, Swiss franc or Japanese yen.
- Politics and unexpected events, which can move prices sharply and without warning.
How to get started sensibly
- 01
Learn on a demo account
Practise with virtual funds on the same platform and prices as a live account, until placing orders, stops and targets is second nature.
- 02
Decide your risk per trade
Many traders risk no more than 1–2% of their account on any one trade. See our risk management guide.
- 03
Always use a stop loss
Decide where you are wrong before you enter, and set the stop when you open the position.
- 04
Start small
Micro lots (0.01) keep the money at stake small while you learn how live trading feels.
Most retail traders who trade leveraged products lose money. Only trade with money you can afford to lose, and make sure you understand how leverage works first.
Frequently asked questions
Is forex trading suitable for beginners?
Beginners can learn to trade forex, but it is high risk because of leverage. Start on a demo account, learn how stops and position sizing work, and only trade live with money you can afford to lose.
How much money do I need to start trading forex?
On AlphaFX Pro the Standard account has a $100 minimum deposit and trades start at 0.01 lot. A demo account is free and uses virtual funds.
When is the forex market open?
The market runs 24 hours a day from Sunday evening to Friday evening (UTC), moving through the Sydney, Tokyo, London and New York sessions.
Do I own the currency when I trade forex CFDs?
No. A CFD follows the price of the currency pair; you never take delivery of the currency itself.
Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. This page is general information, not investment advice. Read the Risk Disclosure.