Forex trading involves risk. Losses can exceed deposits

How to trade forex

Learn how to start forex trading, including how the forex market works and how to open your first position.

Forex trading involves risk. Losses can exceed deposits

When you learn to trade FX, it's not hard to see why it is such a popular market among traders. There’s a huge number of different currency pairs to trade – from majors to emerging currencies to exotics – 24 hours a day Monday through Friday. And many of those pairs are among the most liquid markets available, keeping spreads tight and prices volatile.

Follow these three steps to start trading forex:

1. Find out how forex trading works

2. Understand the forex market

3. Open your first position

Two ways to trade forex

The vast majority of forex trading takes place between major banks and financial institutions, who buy and sell currency in massive quantities every single day. For individual traders who don’t have the means to make billion-dollar forex trades, though, there are two main ways to get involved: rolling spot forex or trading forex via a broker.

Here’s a quick introduction to how they work.

What is rolling spot forex trading?

A rolling spot forex position is a way to trade on currency price movements that involves making a bet on the direction in which a forex pair’s price is headed. The further it moves in that direction, the greater your profit. The further it moves in the opposite direction, the more you lose. The actual amount that you make or lose is determined by the size of your trade.

All rolling spot forex trades take advantage of leverage. Leverage allows traders to get exposure to large amounts of currency without having to pay the full value of their trade upfront. Instead, you only put down a deposit known as margin.

Your profit or loss will still be calculated based on the full size of your position, though. So your profits and losses can be far greater than the amount you put down to open the trade, and your losses can sometimes even exceed your initial deposit.

Find out more about how a forex trade works.

Leverage example

Forex trading via a broker

Forex trading via a broker – or sometimes via a bank – works in a broadly similar way to rolling spot forex.

You’re speculating on the price movements of currency pairs, without actually taking ownership of the currencies themselves. If you think a currency pair’s price is headed down, you can go short instead of long.

When you trade forex via a broker, though, you won’t be able to use leverage.

Understanding the forex market

One of the first things to learn when you want to trade currencies is how the forex market operates, which is different to exchange-based systems such as stocks or futures.

Instead of buying and selling currencies on a centralized exchange, forex is bought and sold via a network of banks. This is called an over-the-counter, or OTC market. It works because those banks act as market makers – offering a bid price to buy a particular currency pair, and a quote price to sell a forex pair.

Forex trading happens all around the world, and the biggest trading centers are New York, London, Tokyo, and Sydney. This is why currency pairs are available to trade 24 hours a day. When the Asian session ends, the European one begins; when the European one ends, trading starts up in North America.

Trading via forex providers

Most retail traders, though, won’t buy and sell forex directly with one of the major banks – they’ll use a forex trading provider. Forex trading providers deal with the banks on your behalf, finding the best available prices and adding on their own market spread.

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Steps to trading forex

1. Open an account

If you want to trade rolling spot forex, you’ll need an account with a leveraged trading provider. You can open an IG account in minutes, and there’s no obligation to add funds until you want to place a trade.

2. Develop a trading plan

This is particularly important if you’re new to the markets. A trading plan helps take the emotion out of your decision making, as well as providing some structure for when you open and close your positions. You might also want to consider employing a forex trading strategy, which governs how you find opportunity in the market.

3. Do your research

If you’ve chosen to use a particular forex trading strategy, then now’s the time to apply it. Use your preferred technical analysis tools on the markets you want to trade, and decide what your first trade should be.

Even if you’re a purely technical trader, though, you should also pay attention to any developments that look likely to cause volatility. Upcoming economic announcements, for instance, might well reverberate across the forex markets – something your technical analysis might not take into account.

Learn more about what moves forex markets.

4. Place a trade

You can trade via the IG Trading platform in your web browser, one of our mobile apps, or even using advanced third-party platforms like MT4.

Open the trade ticket for your chosen market, and you’ll see both a buy and a sell price listed. You’ll also be able to decide the size of your position, and add any stop-losses or take-profits that will close your trade once it hits a certain level. Hit buy to open a long position, or sell to open a short position.

When you’ve decided it’s time to close your position, just make the opposite trade to when you opened it.

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It's free to open an account, takes less than five minutes, and there's no obligation to fund or trade.

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