What is forex trading? Explained simply
Forex (foreign exchange) is the global market where one currency is swapped for another. Banks, companies, governments and individual traders all use it, and it trades around the clock from Monday morning in Asia to Friday evening in New York.
By the TradeFather education team · Updated 27 Oct 2026 · Educational content, not financial advice
- Currencies always trade in pairs: you buy one and sell the other at the same time.
- Average daily turnover was about $7.5 trillion in the BIS 2022 survey, making it the largest financial market.
- Retail profit or loss comes from the price moving between your entry and exit, multiplied by your trade size.
- Leverage magnifies both gains and losses, which is why position sizing matters more than predictions.
How a currency pair works
Every forex price compares two currencies. In EUR/USD = 1.0800, the first currency (EUR) is the base and the second (USD) is the quote. The price tells you that 1 euro costs 1.08 US dollars.
If you think the euro will strengthen against the dollar, you buy EUR/USD. If you think it will weaken, you sell. Your result depends on how far the price travels and how large your position is — not on whether you were 'right' in a yes/no sense.
| Pair type | Examples | What to expect |
|---|---|---|
| Majors | EUR/USD, GBP/USD, USD/JPY, USD/CHF | Highest volume, usually tightest spreads |
| Commodity pairs | AUD/USD, USD/CAD, NZD/USD | Often move with metals, oil and dairy prices |
| Crosses | EUR/GBP, EUR/JPY, GBP/JPY | No USD; spreads a little wider, JPY crosses can move fast |
| Exotics / INR pairs | USD/INR, USD/PKR, USD/TRY | Lower liquidity, wider spreads, more local regulation |
Who trades forex — and why it moves
Set interest rates and sometimes intervene. Rate decisions are among the biggest scheduled movers.
Make most of the interbank volume and quote prices to everyone else.
Importers and exporters convert revenue and hedge future payments.
Move money between countries chasing yield, growth and safety.
Individuals speculating through brokers or, in India, exchange-traded currency derivatives.
Inflation, jobs and GDP releases change rate expectations within seconds.
How profit and loss are calculated
Suppose you buy 0.10 lots (10,000 units) of EUR/USD at 1.0800 and close at 1.0830. The price moved 30 pips. On EUR/USD one pip on 0.10 lots is worth about $1, so the trade made roughly $30 before costs.
Had the price fallen 30 pips instead, you would have lost about $30. Spread, commission and overnight swap reduce every result, so small accounts feel costs more than they expect.
Is forex trading legal where you live?
India: under FEMA, resident individuals may trade currency derivatives only on recognised Indian exchanges (NSE, BSE, MSE) in permitted pairs such as USD/INR, EUR/INR, GBP/INR and JPY/INR, plus specified cross pairs. The Reserve Bank of India publishes an Alert List of unauthorised online forex platforms, and sending money abroad to trade on them is not permitted.
Pakistan: currency conversion and foreign payments fall under the State Bank of Pakistan, and online trading platforms are overseen by the SECP. Many offshore forex apps are not licensed locally, so check the regulator's official lists before depositing anywhere.
Rules change. Always confirm with the regulator's own website rather than a broker's marketing page.
A sensible path for beginners
- 1Learn the vocabulary
Pips, lots, spread, leverage and margin come up on every chart.
- 2Know the sessions
Volume and volatility change hour by hour.
- 3Practise on demo
Use virtual money until your process is repeatable.
- 4Size from risk
Decide the loss you accept first, then calculate the lot size.
Frequently asked questions
+Is forex trading gambling?
It becomes gambling when trades are random and unsized. Forex itself is a real market used by businesses and banks; outcomes for retail traders depend on process, costs and risk control, and many retail accounts lose money.
+How much money do I need to start forex?
Some brokers accept very small deposits, but the useful question is how much you can afford to lose. Micro lots (0.01) let you keep each loss to a few dollars while learning.
+Can I trade forex 24 hours?
The market runs 24 hours a day on weekdays, from the Sydney open on Monday morning (Asia time) to the New York close on Friday night. Liquidity is thinner on weekends and holidays.
+Is forex trading legal in India?
Only through recognised Indian exchanges in permitted INR and specified cross pairs. RBI warns that offshore online forex platforms on its Alert List are unauthorised.