Learn what forex trading is, how currency pairs generate profit, who participates in the global FX market, and how beginners can start with brokers, demo accounts, leverage, risk control and basic trading plans.
Forex trading is an investment method that involves buying and selling currencies from different countries to seek profit from exchange-rate fluctuations. This article starts with the core features of the forex market and the main types of participants, then gradually breaks down the entry process for individual investors, helping beginners systematically understand the basic logic and practical essentials of forex trading.
Basic Concepts and Profit Logic of Forex Trading
To understand forex trading, it is first necessary to clarify the market’s scale and basic operating mechanism.
What Is Forex Trading?
Forex trading (Forex, also known as FX) refers to an investment method that involves buying and selling currencies from different countries to seek profit from exchange-rate movements. According to the triennial survey released by the Bank for International Settlements (BIS) in April 2025, average daily turnover in the global forex market had risen to USD 9.5 trillion, a significant increase from USD 7.5 trillion in 2022 and a record high, far exceeding the total trading volume of the stock and bond markets. (Source: Bank for International Settlements, published: 2025) The forex market operates 24 hours a day, five days a week, and is characterised by high liquidity, low trading thresholds and a high degree of information transparency. It is one of the investment markets most closely watched by individual and institutional investors worldwide.
How Exchange-Rate Movements Become Returns
The core of forex trading is the buying and selling of currency pairs, meaning that an investor buys one currency while selling another. For example, suppose the exchange rate is 1 US dollar to 6 yuan. A trader exchanges RMB 60,000 for USD 10,000. If the US dollar then appreciates to 1 US dollar to 7 yuan, and the trader converts the USD 10,000 back into renminbi, they receive RMB 70,000, generating a profit of RMB 10,000 between the buy and sell transactions. This process can be summarised with a simple formula:
Exchange gain is written as
Exchange gain = Amount received from selling conversion - Cost amount of buying conversion
Exchange-rate movements are influenced by multiple factors. In addition to being closely related to central bank interest rates, economic indicators such as inflation levels and employment data are also core references in forex analysis.
Map of Participants in the Forex Market
The forex market has a wide range of participants, including central banks, commercial banks, hedge funds, institutional investors and individual investors, together forming a large and complex global trading network.
Central banks: influence domestic currency exchange rates by formulating and adjusting monetary policy, and serve as important indicators for forex trading;
Commercial banks and investment banks: provide market liquidity and real-time quotes, handle foreign exchange settlement and conversion needs, and participate in large-scale transactions and arbitrage operations;
Hedge funds and institutional investors: develop strategic trading plans based on information gaps, interest-rate differentials and exchange-rate fluctuations, using algorithmic models to capture profit opportunities;
Individual investors: participate in the market by registering with forex brokers. Although their capital scale is relatively small, they are flexible, can enter and exit the market promptly, and may use technical analysis, market information and trading strategies to seek opportunities in the forex market.
The market impact of central bank policy has been verified many times in history.
Cause: On 15 January 2015, the Swiss National Bank unexpectedly announced the removal of the 1.20 exchange-rate floor for the Swiss franc against the euro, ending the peg mechanism it had maintained for an extended period.
Development: After the announcement, the market had almost no buffer time. The Swiss franc surged sharply against the euro within a short period, and several brokers fell into operational difficulties because client accounts recorded substantial negative balances. Some even collapsed due to insolvency.
Impact: This event became known in the industry as the “Swiss franc black swan”. It later became a landmark case in forex risk management, prompting more brokers to strengthen risk control mechanisms such as negative balance protection.
Core Advantages of Forex Trading Compared With Other Financial Markets
Compared with traditional financial instruments such as stocks and bonds, the forex market has distinctive features in terms of trading hours, trading direction and capital efficiency.
| Feature | Forex market | Stock market | Bond market |
|---|---|---|---|
| Trading hours | 24 hours a day, five days a week | Limited by fixed exchange trading sessions | Limited by fixed exchange trading sessions |
| Trading direction | Supports two-way trading, allowing positions in both rising and falling markets | Mainly long-biased, with relatively strict short-selling conditions | Mainly focused on holding to maturity to earn interest |
| Use of leverage | CFD trading commonly supports leverage | Leverage tools such as margin financing and securities lending are subject to restrictions | Use of leverage is relatively limited |
| Liquidity | The most liquid financial market in the world | Varies significantly between individual stocks | Overall liquidity is lower than that of the forex and stock markets |
High Liquidity and Two-Way Trading
The forex market covers the major trading time zones across Asia, Europe and the Americas, allowing investors to buy and sell currencies flexibly according to their own schedules. At the same time, forex trading supports two-way trading. Investors can buy when a currency appreciates to seek profit, or short a currency when it depreciates to seek returns. Trading opportunities may therefore exist whether the market is rising or falling.
Leverage: A Double-Edged Sword for Improving Capital Efficiency
Contracts for difference in forex trading commonly involve the use of leverage. Leverage allows investors to control a larger trading volume with less capital, thereby lowering the entry threshold and accommodating investors with different capital sizes. Leverage can improve capital utilisation, allowing idle funds to be allocated flexibly to other investments, and can also amplify returns when market trends are clear. However, it is equally important to note that losses are also magnified when market conditions move unfavourably, so leverage should be used with caution and supported by proper position management.
Key Points for Getting Started With Forex Trading
For beginners, moving from broker selection to building trading habits is a gradual process.
Selecting a Broker
An efficient way to get started is to find a professional and reliable broker. A quality broker not only provides a secure and compliant trading environment, but also offers comprehensive educational resources, demo accounts and trading platforms covering multiple asset classes such as forex, precious metals and indices. Regulated brokers are typically supervised by recognised authorities such as theFCAand theFSC, with a relatively transparent trading environment. Some platforms also join third-party dispute resolution organisations such as The Financial Commission, further providing clients with safeguards related to trading qualifications.
Start Learning With a Demo Account
For beginner investors, applying for a free demo account first is a prudent way to learn forex trading. Over one to two weeks, investors can become familiar with basic operations, currency pair codes and trading processes, while accumulating practical experience in a risk-free environment and practising trading strategies and risk control techniques.
Build a Trading Rhythm That Suits You
After gaining some experience, beginners need to gradually explore a trading rhythm that suits their own risk tolerance and time commitment. Some prefer short-term intraday trading, which requires long periods of screen-watching and responses to minute-level price movements. Others may be better suited to medium- to long-term positions, using macroeconomic data and interest-rate cycles to judge trends, while reducing the fees and emotional strain caused by frequent trading. Whichever rhythm is chosen, creating a clear trading plan and setting specific entry and stop-loss conditions are fundamental to controlling risk and avoiding emotional decisions.
Trading Is a Lifelong Learning Journey
Whether someone is a complete beginner or an experienced trader with years of practical experience, they need to maintain a lifelong learning mindset. The forex market changes rapidly, with economic data, policy changes and market sentiment continuously affecting exchange rates. Only by continuing to learn new analytical methods and risk management techniques can traders remain competitive in the market and achieve more stable long-term trading performance.
Questions Related to Forex Trading
How much money is needed to start forex trading?
Entry thresholds vary between platforms. Some mainstream trading platform accounts allow investors to start with USD 1,000, while others set the minimum deposit at around USD 50, which is suitable for beginners who want to try with a small amount. Both complete beginners and experienced traders can participate gradually.
What are the main currency pairs in forex trading?
Major currency pairs refer to the most liquid and actively traded currency combinations. They usually include EUR/USD (euro/US dollar), USD/JPY (US dollar/Japanese yen), GBP/USD (pound sterling/US dollar), USD/CHF (US dollar/Swiss franc), AUD/USD (Australian dollar/US dollar), NZD/USD (New Zealand dollar/US dollar) and USD/CAD (US dollar/Canadian dollar).
What is leverage in forex trading?
Leverage allows traders to operate a larger trade size with less capital. For example, with 100x leverage, an investment of USD 100 can control a trading size of USD 10,000. Returns may be magnified when the market moves favourably, but losses are also magnified when the market moves unfavourably. Leveraged trading therefore requires caution and proper position control.
Why can the forex market trade 24 hours a day?
The forex market does not have a single central exchange. Instead, it is an over-the-counter network made up of banks and financial institutions across different global time zones. From Asia-Pacific to Europe and then North America, the main trading sessions connect in sequence, enabling the forex market to operate continuously 24 hours a day, five days a week.
How should beginners reduce risk before trading with real money?
It is advisable to first use a demo account to become familiar with trading processes and platform operations, and then enter the live market with a small amount of capital after gaining some experience. Traders should also set reasonable stop losses, control the proportion of capital allocated to each trade, and avoid losses that are difficult to withstand due to a single event or extreme market conditions.
