How to trade forex: A complete beginner's guide to getting started
Reading time: 7 minutes
Trading in the foreign exchange market – or ‘Forex (FX) market’ – reached US$9.6 trillion per day in April 2025, according to the Bank for International Settlements’ Triennial Central Bank Survey; this represents a 28% increase from US$7.5 trillion in 2022.
Forex is the world’s largest financial market, offering considerable liquidity – the ease with which you can buy and sell. While FX trading can seem like the preserve of major hedge funds and central banks, it is accessible to everyone with a laptop and an internet connection.
Whether you are aiming to diversify your investment strategy or generate a part-time additional income stream, this post helps provide you with a solid foothold to begin your currency trading journey.
What is forex trading?
Trading in the Forex market is straightforward at its core; you buy one currency and simultaneously sell another. The currency market functions by way of ‘pairs’ – essentially pairing two currencies to form an exchange rate. EUR/USD is the most popular currency pair, pairing the euro with the US dollar. Suppose the EUR/USD is trading at US$1.1300; this means 1 EUR is valued at US$1.13.
Unlike stock markets – which operate through centralised exchanges – the currency market trades in the over-the-counter (OTC) market and is open 24 hours a day, five days a week. The OTC market is where currencies are traded via dealers across vast networks, with pricing derived from the interbank market.
The FX week begins in New Zealand on Monday and ends in the US on Friday. The four major Forex trading sessions include Australia (Sydney), Asia (Tokyo), Europe (London), and the US (New York).
Understanding currency pairs
To begin trading Forex, it is important to understand its basic structure and the categories of currencies.
Majors:
At the top are major currency pairs. These are the most heavily traded in the FX market and will usually have the tightest spreads. Key majors include the USD, EUR, JPY (Japanese yen), GBP (British pound), AUD (Australian dollar), CHF (Swiss franc), NZD (New Zealand dollar), and CAD (Canadian dollar). Major currency pairs always involve the USD and other widely traded currencies. Three popular examples are EUR/USD, GBP/USD, and USD/JPY.
A spread is the difference between the bid and ask prices provided by your FX broker. For example, assume that the EUR/USD is currently trading with a bid price of US$1.1782 (the level from which traders can sell) and an ask of US$1.1783 (the level at which traders can buy). As you can see, the difference between these two prices is 0.0001, or 1 pip (we explain more on this below). That is your bid/ask spread.
Minors:
Minor currency pairs do not include the USD, but do generally feature a major currency. These types of pairs are also commonly referred to as ‘crosses’. Common crosses include pairs such as GBP/JPY, EUR/GBP, and AUD/NZD. While these tend to be liquid pairs, they are often less so than the majors.
Exotics:
Finally, we have exotic currency pairs, formed by pairing an emerging currency with a major currency. These include EUR/ZAR (South African rand) and USD/TRY (Turkish lira), and are often more volatile (with larger price swings) than major and minor currency pairs. They also tend to be much less liquid and often have wider spreads.
Base and quote currencies
You must understand that you always trade the base currency (the first currency listed in a pair). If you think the EUR will rise against the USD, for example, you would buy the base currency and sell the quote (or term) currency, which is always the second listed currency in the pair. Importantly, currency prices are derived from the quote currency.
Furthermore, price movements in the FX market are measured in pips – or ‘price interest point’ – with most pairs priced to the fourth decimal point. To illustrate, suppose EUR/USD trades at US$1.3200 and then jumps to US$1.3210; this means the pair rose by 10 pips. The exceptions are pairs that include the JPY; these are usually priced to the second decimal point (¥0.00). For example, USD/JPY dropping from ¥123.00 to ¥122.50 represents a 50-pip decline.
FX market drivers
Given that the FX market is the largest financial market in the world, several factors influence price action across currencies.
Central bank policy:
Central bank policy is the most influential driver of FX volatility. Interest rate decisions from central banks, such as the US Federal Reserve (Fed), the Bank of England (BoE), and the European Central Bank (ECB), carry significant weight in moving the currency market and even changing (or underpinning) trends. It is not just the rate decision; it is also the expected changes in policy, and comments from central bank officials (referred to as ‘signalling’) that can (and often do) impact currency prices.
Economic data:
Economic data can also alter price movement in the Forex market. The ‘big three’ economic indicators include employment, inflation, and growth (Gross Domestic Product [GDP]). You will find that the stronger the connection between these data and the central bank’s prevailing bias, the larger the price reaction when they are released.
For example, imagine that the Fed is aware of potential inflationary pressures, with some Fed officials stating the need to raise rates. If inflation data comes in higher than expected, it could increase the chances the Fed raises rates, which is positive for the USD given its yield attractiveness. This provides opportunities to sell currency pairs such as EUR/USD or GBP/USD.
Geopolitics:
Global geopolitics takes centre stage from time to time and dominates not only FX flows, but all key asset classes, including stocks, bonds, commodities, and cryptocurrencies. During periods of global uncertainty, the USD often attracts safe-haven demand.
Market sentiment:
Market sentiment – a measure of investors' mood – is vital to monitor in FX, as it can amplify market moves. One popular way to measure is to assess weekly CoT (Commitment of Traders) data. For example, in April 2026, the CAD exited overbought buying territory, and the NZD has equally departed oversold territory. Understanding this, and following the announcement of the US-Iran ceasefire also in April, this sent CAD lower alongside oil (the move was amplified by unwinding long CAD positions), and the NZD found buyers on risk sentiment, given its higher beta (higher sensitivity to market risk) characteristics and was amplified by unwinding short NZD positions.
Developing a trading strategy
In addition to a trading strategy, astute Forex traders know it is equally important to understand the need for risk management and to develop a trading mindset.
A trading strategy is your blueprint for deciding whether to buy, sell, or hold. This will usually include a blend of technical and fundamental analysis (macroeconomic study) to generate trading ideas. Technical analysis can include price action assessment, Fibonacci studies, breakout trading, and more. One important point to remember when considering both methods of trading is that technical analysis helps answer the question of when to enter or exit the market, while macroeconomic analysis explains why a currency is moving in a particular direction.
You will also need to choose whether you are a short-term trader (focussing on scalping or day trading) or a longer-term investor (swing or position trading). Once you decide – usually dependent on your preferences and personal obligations – you can begin testing trading ideas on a demo account and subsequently forward test your trading strategies using a small live trading account. This will help highlight your trading edge – the probability of one thing happening over another. Having a strategy keeps traders focussed, and helps avoid overtrading and revenge trading.
A trading plan is key
The overall trading plan includes everything you need to function as a trader. At the very least, this should include the trading strategy, risk management approach, goals, and a trading journal, which helps build a trader's mindset. Do not overlook these components; even with a strong trading strategy, lacking risk management and the right mindset can result in a losing trading account.
Effective risk management can be as simple as using protective stop-loss orders. This is an order placed in the market to help limit downside risk when a trade fails. The key is to keep losses manageable so you can stay in business. Losses are a part of the trading process, and limiting these losses and locking in trading gains when presented are the main focus.
Position sizing is another critical element of risk management and is determined by your risk tolerance. In simple terms, position sizing refers to how much of your trading capital you allocate to any single trade. A good starting point for a beginning trader is considered to be between 1-2%. To learn more about this important aspect, the Research Team has developed a three-part series on position sizing.
In terms of your trading mindset, this is about learning how to control your emotional response to trading. You will never fully remove the emotional component, particularly if you trade manually. Achieving emotional control starts with a small trading account and building your equity slowly and in a controlled manner. At its core, this involves risking a small percentage of your trading account per trade, and ensuring you can generate consistency over a period of time (three months, for example) before adding funds to your account and, thus, increasing your risk. What you are doing here is familiarising yourself with risk in a gradual and, importantly, controlled process.
Choosing a forex broker
One of the most important parts of your trading journey is choosing a broker. A common approach is first to seek brokers that offer a regulated trading environment, featuring regulatory bodies such as ASIC (Australian Securities & Investments Commission) and CySEC (Cyprus Securities and Exchange Commission), which help provide a degree of protection for your funds.
Experienced traders will then look at what resources a broker provides. Reliable high-end trading platforms must provide access to charting solutions, such as TradingView, along with a demo offering that allows market participants to practice trading with simulated funds. This is a must for many new traders, as they need to familiarise themselves with the platforms, the entry and orders, without financial risk.
Start forex trading
Despite the hype from some ‘educators’, the get-rich-quick schemes, trading in the financial markets successfully requires a unique skillset, one that takes time to reach. For those willing to learn more about trading and spend time developing strategies and testing their validity, trading in FX can be a worthwhile venture.
Fortunately, even after you move from demo to a live trading account, you do not require a large account size to begin trading with real money, with many brokers allowing traders to operate with as little as 100 USD.
The fundamentals of forex are learnable, and today's retail traders have more powerful tools at their disposal than ever before. Open a demo account, study the markets, and above all, prioritise risk management and learning about acquiring a trading mindset from the outset.
Written by FP Markets Chief Market Analyst Aaron Hill
