Forex is the largest financial market in the world, where currencies are traded in pairs, 24 hours a day, five days a week. Trading it means taking a view on one currency against another: buy EURUSD and you profit if the euro strengthens against the dollar. The mechanics are simple to learn and the market is deeply liquid, which is why forex is where most new traders start.
This guide explains what forex trading is, how pairs, pips, lots, and leverage work, what moves exchange rates, and how traders access forex through a funded account.
Highlights of this article
- Forex is traded in pairs (like EURUSD); you are always buying one currency and selling another
- The market runs 24 hours a day, five days a week, across the Sydney, Tokyo, London, and New York sessions
- Price moves are measured in pips, and position size is measured in lots (1 standard lot = 100,000 units of the base currency)
- Forex is traded with leverage, which magnifies both gains and losses, so position sizing matters more than the leverage on offer
- On a Velotrade funded account you trade 39 currency pairs at up to 50x, alongside crypto, indices, commodities, and stocks on one platform
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What forex trading is
Forex (foreign exchange, or FX) is the market for trading one currency against another. Prices are always quoted as a pair, such as EURUSD or USDJPY. The first currency is the base, the second is the quote, and the price tells you how much of the quote currency it takes to buy one unit of the base. When EURUSD is 1.10, one euro costs 1.10 US dollars.
You go long a pair if you expect the base to strengthen against the quote, and short if you expect it to weaken. Because you are always trading a ratio of two currencies, there is no single "up", every trade is a bet on one currency relative to another. For the full definition and how quotes work, see what is forex trading.
The three types of currency pairs
- Majors. The most traded pairs, all involving the US dollar: EURUSD, GBPUSD, USDJPY, USDCHF, AUDUSD, USDCAD, NZDUSD. They have the tightest spreads and deepest liquidity.
- Minors (crosses). Pairs of major currencies that do not include the US dollar, such as EURGBP or EURJPY. Slightly wider spreads.
- Exotics. A major currency against an emerging-market currency, such as USDMXN or USDZAR. Higher volatility and wider spreads.
Most active traders concentrate on the majors, where liquidity is deepest and costs are lowest.
Pips, lots, and leverage
Three terms do most of the work in forex.
- Pip. The standard unit of price movement, usually the fourth decimal place (0.0001), or the second decimal on yen pairs. A move from 1.1000 to 1.1001 in EURUSD is one pip. For a full explanation and how to value a pip, see what is a pip.
- Lot. The unit of position size. One standard lot is 100,000 units of the base currency; a mini lot is 10,000 and a micro lot is 1,000. Lot size determines how much each pip is worth.
- Leverage. Forex is traded on margin, so a small deposit controls a much larger position. Leverage magnifies both gains and losses in equal measure, which is why disciplined position sizing matters far more than the maximum leverage a firm advertises. See prop firm leverage explained.
For how total position value is calculated, see notional value explained.
What moves currency prices
Exchange rates are driven by the relative strength of two economies and their monetary policy:
- Interest rates and central banks. The single biggest driver. When a central bank raises rates, its currency usually strengthens as higher yields attract capital. Decisions from the Fed, ECB, and Bank of Japan move pairs sharply. See what is FOMC trading.
- Economic data. Inflation (CPI), growth (GDP), and jobs data reset rate expectations. Non-farm payrolls is the most watched US release. See what is NFP trading.
- Risk sentiment. In risk-off periods, safe-haven currencies (USD, JPY, CHF) tend to strengthen while higher-yielding and emerging-market currencies weaken.
- Trade and capital flows. Current-account balances and cross-border investment shift longer-term currency demand.
The ways to trade forex
1. Spot forex (CFD). Most active retail traders trade forex as a contract for difference that tracks the spot rate, going long or short with leverage without exchanging physical currency. The most flexible route for position sizing.
2. Currency futures. Exchange-listed contracts (such as CME's 6E for the euro) with fixed sizes and expiries. More structure, less flexibility for small accounts.
3. A funded account. Trade forex pricing on a firm's capital against a profit split, with your downside limited to a one-time challenge fee. For a full comparison of the model against trading your own money, see funded trading vs leverage trading.
Trading sessions
Forex runs around the clock on weekdays because it moves between financial centres: Sydney, then Tokyo, then London, then New York. The busiest, tightest-spread window is the London and New York overlap. For the full session map and the best hours to trade, see forex market hours.
Trading forex on a funded account
Velotrade is a multi-asset prop firm, and forex is a first-class market on it:
- 39 currency pairs across majors, minors, and exotics. Majors trade at up to 50x leverage on the challenge (30x funded), minors at 30x, and exotics at 20x, with commission of 0.004% per side (0.4 basis points) and no spread markup.
- They sit on one DXtrade funded account alongside crypto, indices, commodities, and stocks, so you can rotate between markets without switching firms. See the full instrument list.
- The rules suit an active FX strategy: static maximum drawdown (the loss floor is fixed from your starting balance and never trails your equity), no consistency rule, and news trading permitted, which matters on forex because pairs move hard around rate decisions and data.
To compare firms specifically for forex, see best prop firm for forex.
Velotrade is unregulated and offers educational, simulated evaluations with real-time market pricing. It is not a broker, dealer, or custodian, and no orders are placed on an exchange.
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Forex trading basics
- Spreads and costs. The tighter the spread and commission, the lower your cost to trade. Majors are cheapest.
- Position sizing. Size against your daily loss limit and stop distance, not against the maximum leverage. Leverage does not set your risk; your position size and stop do.
- Volatility by pair. Majors are steadier; exotics swing harder. Match the pair to your risk tolerance.
- News awareness. Scheduled releases (FOMC, CPI, NFP) create the largest, fastest moves. Trade them with a plan or stand aside.
Frequently Asked Questions
About the author
Vittorio De Angelis
Executive Chairman
Former equity-derivatives trader at JP Morgan, Dresdner Kleinwort and Bank of America in London. Later Head of Brokerage at a global broker in Hong Kong.
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