Forex often gets misrepresented online. Social media is full of screenshots of huge profits, luxury cars, and “gurus” promising to double your money overnight. That isn’t how real forex works.
Forex trading is a legitimate financial market, but it requires skill, planning, and risk management—just like any other form of investing.
What Forex Trading Really Is
Forex stands for foreign exchange, which is the buying and selling of currencies.
- Currencies are always traded in pairs, like EUR/USD (euro vs. US dollar) or USD/JPY (US dollar vs. Japanese yen).
- If the euro strengthens against the dollar, the EUR/USD pair goes up. If it weakens, the pair goes down.
It’s similar to the stock market, except instead of buying shares in companies, you’re buying and selling currencies.
How Profit Is Made in Forex
Traders make money by predicting whether a currency pair’s price will rise or fall. There are two main ways to profit:
- Going long (buying) — Buy low and sell high.
- Going short (selling) — Sell high and buy back lower.
Example:
If EUR/USD is at 1.0800 and you think it will rise, you buy. If it climbs to 1.0850, you earn the difference (50 pips).
If you think it will fall from 1.0800 to 1.0750, you sell. If it drops, you earn the 50-pip difference.
How Trades Are Placed
Most traders use an app like MetaTrader 5 (MT5) to place trades. The steps are:
- Open an account with a forex broker and connect it to MT5.
- Tap New Order on MT5.
- Choose a lot size.
- A lot is the size of your trade. One standard lot equals 100,000 currency units, but beginners usually trade small positions like 0.05 lots.
- Click Buy if you expect price to rise or Sell if you expect it to fall.
The app will track your profit or loss in real time as price moves.
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Understanding Pips and Lot Size
A pip (percentage in point) is the smallest price movement in a currency pair. Most pairs move in 0.0001 increments (1 pip).
How much you earn per pip depends on your lot size. For example:
- 0.01 lot = about $0.10 per pip
- 0.10 lot = about $1.00 per pip
- 1.00 lot = about $10.00 per pip
If you buy EUR/USD at 1.0800 with 0.10 lots and it rises to 1.0820 (20 pips), you gain about $20.
How Forex Differs From Betting
It might seem similar to sports betting, but forex is different. There are no fixed odds. You control:
- When to enter and exit trades
- How much risk to take per trade
- How much you can potentially earn or lose
Successful traders rely on analysis—technical analysis (price charts and patterns) and fundamental analysis (economic news, interest rates, etc.)—not luck.
Next Steps for Beginners
To trade effectively, you must:
- Understand how pips, lot size, and leverage work together
- Learn how to read and analyze price charts
- Develop a trading plan and practice risk management
If you want structured training, get a free 1-hour beginner forex course and ebook here
There’s also a Telegram for free trading signals to help you practice on a demo account.