Forex Trading Explained

  • Forex trading involves the simultaneous buying of one currency and selling of another.

    Forex traders hope to generate a profit by speculating on the value of one currency compared to another.

    Currencies are always traded in pairs

    All forex prices are quoted in terms of one currency versus another. Each currency pair has a ‘base’ currency and a ‘counter’ currency. The base currency is the currency on the left of the currency pair and the counter currency is on the right.

    For example, in EUR/USD, EUR is the ‘base’ currency and USD the ‘counter’.

    What is Forex Trading? Euro vs the Dollar

    Leverage and financing

    Foreign exchange is a leveraged (or margined) product, which means that you are only required to deposit a small percentage of the full value of your position to place a forex trade. This means that the potential for profit, or loss, from an initial capital outlay is significantly higher than in traditional trading. Read more about the impact of leverage in our risk management section.

    Associated with this leverage is a financing fee on positions held overnight – this charge is effectively the cost of borrowing the full value of the trade when you deposit only a small percentage of this value as margin to open and maintain the position.

    Forex trading examples

    Going longGoing short

    Learn more about FX trading