MoneyPlanIt

Ways to trade and invest · Guide 7 of 11

What Is Forex Trading? A Beginner’s Guide to Currency Trading

Last reviewed 2 November 2026Advanced: uses leverage or contractsCovers the UK, US, EU, Australia and Canada

The short version

Forex (short for foreign exchange, also called FX) means trading one currency against another, such as euros against US dollars. It’s the biggest financial market in the world, open 24 hours a day on weekdays. Retail forex trading is almost always done with leverage, which turns tiny currency moves into big gains or losses, and most people who try it lose money.

You get
A bet on one currency rising or falling against another
Typical costs
Spreads, commissions and overnight financing
Can you lose more than you put in?
Yes in some countries and account types; see below
Risk
Very high
  • Currencies are traded in pairs, such as EUR/USD. You’re betting that the first currency will rise or fall against the second.
  • Moves are measured in pips, usually 0.0001 of the price.
  • Brokers let you trade with leverage, so a deposit of a few hundred controls tens of thousands of a currency.
  • In the UK and EU, retail forex is usually done through CFDs or spread bets, with leverage capped at 30:1 on major pairs. In the US, the cap is 50:1.
  • Depending on where you live and your account, you could lose more than you deposited.

How forex works

Every forex price is a currency pair. In EUR/USD at 1.1000, the first currency (the base, euros) costs 1.10 of the second (the quote, US dollars). If you think the euro will strengthen against the dollar, you buy the pair, also called going long. If you think it will weaken, you sell it, called going short. You can profit from prices falling as easily as rising, and lose either way too.

Currency prices move in small steps. A pip is usually the fourth decimal place, so EUR/USD moving from 1.1000 to 1.1050 is a 50-pip move1. Trades are sized in lots: a standard lot is 100,000 units of the base currency, a mini lot 10,000 and a micro lot 1,000.

Because daily moves are often well under 1%, retail brokers offer leverage: you put down a deposit, called margin, and the broker lets you control a much bigger position.

What it costs

  • Spread: the gap between the buy and sell price, often a fraction of a pip to a few pips on major pairs, wider on less-traded ones and at quiet times.
  • Commission: some accounts charge a fee per trade in exchange for tighter spreads.
  • Overnight financing (swap or rollover): keeping a leveraged position open overnight costs or pays a small daily amount, based on the interest rates of the two currencies.
  • Currency conversion: profits and losses in another currency are converted back to yours.

These costs look tiny per trade, but frequent traders pay them hundreds of times. Over a year they can add up to a large share of the account.

The risks

  • Leverage magnifies losses. At 30:1, a 3.3% move against you wipes out your margin.
  • Gaps and surprises. Prices can jump past your stop loss after a central bank decision or over a weekend. In January 2015, the Swiss franc jumped around 30% within minutes when Switzerland’s central bank removed its currency cap, and some traders ended up owing their brokers money.
  • Most retail traders lose. UK and EU providers must publish the percentage of their retail accounts that lose money on CFDs, which include most retail forex trading; it is usually well over half.
  • Scams. Unregistered “forex signal” groups, account managers and trading bots promising steady profits are among the most common investment frauds2.

Rules where you live

Products, protections and tax rules differ from country to country. Here’s a summary for the main English-speaking markets. Always check your own regulator for the latest position.

UK
Retail forex is mostly offered as CFDs or spread bets under FCA rules: leverage up to 30:1 on major pairs and 20:1 on others, automatic close-out when your account falls to 50% of the margin needed, and negative balance protection34.
US
Retail forex can only be offered by firms registered with the CFTC and NFA. Leverage is limited to 50:1 on major pairs and 20:1 on others5. CFDs aren’t available to US retail traders.
EU
The same limits as the UK apply: 30:1 on majors, 20:1 on other pairs, 50% margin close-out and negative balance protection.
Australia
ASIC rules limit retail leverage to 30:1 on major pairs and 20:1 on others, with negative balance protection. In October 2026 ASIC proposed extending these rules to 20376.
Canada
Forex dealers must be registered with CIRO, which sets margin requirements. Check registration with the CSA before opening an account.
Elsewhere
Many brokers advertising very high leverage (100:1 or more) are regulated offshore, where protections are weak or absent. If a firm isn’t authorised in your country, think very carefully before using it.

Who it tends to suit

Tends to suit

  • Experienced traders who understand leverage, use stop losses and size positions carefully.
  • People who want to learn by practising on a demo account first, with no real money.

Think twice if

  • Complete beginners using real money.
  • Anyone looking for a way to make regular income or pay bills.
  • Anyone approached by a stranger offering to trade forex for them.

How to get started safely

  1. Learn the basics first: our trading lessons on position sizing and stop losses are a good start.
  2. Practise for weeks on a demo account and keep a record of every trade.
  3. If you go live, use a broker authorised in your country and check it on the regulator’s register.
  4. Risk no more than about 1% of your account on any single trade, and always know where you’ll get out.
  5. Find the provider’s published percentage of losing retail accounts and take it seriously.

Words in this guide

Forex (FX)
The market for exchanging one currency for another.
Currency pair
Two currencies quoted against each other, such as EUR/USD. The first is the base, the second the quote.
Going long / going short
Buying because you expect a rise, or selling because you expect a fall.
Pip
The standard unit of price movement, usually 0.0001.
Lot
A standard trade size: 100,000 (standard), 10,000 (mini) or 1,000 (micro) units of the base currency.
Leverage
Controlling a position bigger than your deposit, using money from your broker.
Margin
The deposit needed to open and keep a leveraged position.
Negative balance protection
A rule that stops a retail account going below zero, so you can’t owe the provider money.

Frequently asked questions

Is forex trading good for beginners?

No, not with real money. Leverage means small moves cause big losses, and most retail traders lose money. Demo accounts are a much better place to learn.

How much money do you need to trade forex?

Brokers often let you start with very little, which is part of the danger: a small account with high leverage can be wiped out by an ordinary move. Never trade with money you can’t afford to lose.

Can you lose more than you invest in forex?

In the US, and with many offshore or professional accounts, yes. In the UK, EU and Australia, retail accounts have negative balance protection, so you can lose your whole balance but not more.

Sources and further reading

Numbers in the guide, like 1, point to these sources. Rules, fees and tax change, so check the latest version before you act.

  1. What is a pip? FOREX.com.
  2. Fraud Advisory: Foreign Currency (Forex) Fraud. U.S. Commodity Futures Trading Commission (CFTC).
  3. FCA confirms permanent restrictions on the sale of CFDs and CFD-like options to retail consumers (July 2019) Financial Conduct Authority.
  4. Leverage and margin limits in the UK. BrokerChooser.
  5. New CFTC rules on retail forex (50:1 and 20:1 leverage limits) BabyPips.
  6. ASIC moves to extend and strengthen CFD consumer protections (26-239MR, 12 October 2026) Australian Securities and Investments Commission.

What to read next

Back to top