CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Forex trading for beginners

Forex trading for beginners doesn’t have to be intimidating. Equip yourself with the skills needed to start your FX trading journey – using the world’s No.1 choice for CFD trading.¹

Start trading today. Call +971 (0) 4 5592108 or email sales.ae@ig.com. Our sales team is available from 8:00am to 6:00pm (Dubai time), Monday to Friday.

What’s on this page?

What is the forex market?
How do forex pairs work?
What factors affect exchange rates?
How do you trade forex?
Example of a forex trade
How to practise forex trading
What are the advantages and risks of forex trading?
How do you open a forex trading account?

What is the forex market?

The forex market is not a centralised place or physical place, it's an abstract concept related to the buying and selling of foreign exchange. It’s made up of transactions from various organisations such as banks, institutions, private individuals and governments. On average, the forex market sees trillions of dollars’ worth of trades daily.

The forex markets are extremely liquid, and often quite volatile, depending on the currency pair you’d like to trade. Some of the most well-known currency pairs include:

GBP/USD is the US dollar and British pound currency pair – one of the popular forex pairs traded globally
EUR/USD is the currency pair for the European Union’s euro currency against the US dollar – one of the major forex pairs traded worldwide
USD/JPY is the US dollar and Japanese yen currency pair, one of the traditional major forex pairs
AED/USD is the United Arab Emirates dirham pegged against the US dollar, a minor currency pair

How do forex pairs work?

A forex pair consists of two currencies that are being exchanged (or traded for each other). Forex pairs are composed of a base and quote currency. A base currency is the first currency that is quoted against the other.

Graphic showing a forex pair with the British pound as the base currency and the US dollar as the quote currency.

For instance, GBP/USD currency pair has the pound as the base currency and the US dollar as the quote currency. The price represents how many dollars you'd need to spend to buy one pound. If the price of GBP/USD is 1.31236, it means that you’d need $1.31 to buy a single pound.

Image showing how many US dollars one pound can buy, which is illustrated as £1 = $1.31236.

What is a ‘pip’ in forex?

‘Pip’ is an acronym for ‘point in percentage’ representing a movement that’s equivalent to a hundredth of one percent (1%). For example, GBP/USD with the quote currency equivalent to 1.31236 means a pip movement would be seen on the fourth decimal point. So, if the price increased to 1.31246, that would be a one-pip movement. The fifth decimal point is called a baby pip.

Example of a change in an exchange rate

EUR/USD is one of the major currency pairs that are popular because of its high liquidity and tight spreads. This forex pair likely has low volatility compared to other pairs since both the base and quote currency belong to countries that make up some of the world’s biggest economies – they tend to be more stable.

For example, if the price quoted for EUR/USD was 1.1800, you'd have to spend $1.18 (USD) to buy €1.

Learn more about floating exchange rates

What factors affect exchange rates?

Ultimately, exchange rates are set by supply and demand. When demand for one currency outstrips that of the other in the pair, the price of that currency goes up. For instance, in the case of the EUR/USD pair mentioned above, this will take place when more people want to buy US dollars than euros at one time.

Whatever affects these market forces will have an impact. These never work in isolation from each other or other economic variables. Below are some factors that affect the exchange rate:

Global economic health. Strong, stable economies with no political risk and conflict are likely to attract a healthy amount of foreign direct investment, increasing the country’s wealth
Domestic interest rates. When a country’s central bank changes interest rates, this has a direct impact on the inflation and exchange rates. Higher interest rates mean higher returns for the lender
Inflation. A relatively lower inflation rate results in a stronger currency value, increasing a country’s purchasing power against other currencies
Changes in domestic stock prices. A rise in the domestic stock market price increases investor confidence as it indicates the strengthening of a country’s economy. This is likely to attract foreign investors and increase demand for the domestic currency
Changes in commodity markets like oil and gold. The price fluctuations of highly valued commodities like oil and gold have a strong influence on the exchange rate movements. Oil and gold prices have an influence on a country’s currency and volatility
Domestic or national economic health and events. A country’s domestic events have an influence on market sentiment. Positive economic events attract investment into a country, while negative ones are likely to result in disinvestment
Balance of payments (BOPs). These are transactions a country makes with other economies across the globe within a specified timeline. BOPs can result in fluctuations in domestic and foreign exchange rates, depending on the supply and demand of the stronger currency

Learn more about what affects the price of the US dollar

How do you trade forex?

Forex is traded in ‘lots’, which are often very large, equivalent to 100,000 units of the base currency. You’ll likely want to buy the currency you believe will strengthen and then sell it later for a profit. Alternatively, you’d sell the currency you believe will weaken and then buy it back later at a lower price, thereby making a profit.

Learn more about how to trade forex

Going long vs going short in forex

You’ll buy a currency pair to go long and sell it to go short. When you ‘go long’ it means you’re buying the base currency and selling the quote currency. For example, in the case of GBP/USD, you go long if you expect the British pound to strengthen against the US dollar. You’ll earn a profit if your long position on the currency pair increases in price.

If you short (‘sell’) a currency pair, you’d be expecting the base currency to depreciate against the quote currency. Using the same GBP/USD as an example, you could short GBP for USD. If the dollar strengthens, the price of the pound would have dropped. This means you can buy more pounds for your USD than you originally spent, earning you a profit.

The ‘sell’ and ‘buy’ prices of GBP/USD. You’d ‘buy’ if you expect GBP to strengthen against USD, and ‘sell’ if you expect GBP to weaken against USD.

What is the spread?

In forex, a spread is a small fee built into the buy (bid) and sell (ask) price of every currency pair you trade. This is seen on a deal ticket as a difference between the buy and sell prices quoted for a currency pair.

Graphic showing a 1.5 spread between the buy and sell price of GBP/USD.

Trading FX with CFDs

The large lot sizes make FX trading very expensive for non-institutional traders to buy and sell actual currencies for speculation. With us, you can use financial products known contracts for difference (CFDs) to take a position on forex pairs without ever needing to hold the currencies themselves.

With CFD trading, you exchange the difference in price between opening and closing your position. You can take a position on spot, options and forward prices.

CFDs enables you to trade forex with leverage and can be used to go long or short. When trading with leveraged derivatives, you need to manage your risk effectively since they magnify your profits and losses, depending on whether the market moves in or against your favour.

Trading forex on the spot

Spot FX trading is when you buy forex at the current cash price, meaning the exchange occurs at the exact point the trade is settled. When trading with us, you’ll buy and sell the forex pair at a spot price and current market rate.

Trading on the spot is popular among day traders since they can take advantage of the low spreads that come with opening short-term positions, plus there’s no expiry date. If you keep your trade overnight, you’ll incur a fee.

Trading forex forwards

Trading forex forwards means you have the obligation to buy or sell the currency pair at a specified price and set future date. When trading forex forwards you’ll be speculating on currencies without owning the physical currency outright. Forex forwards usually have a wider spread since they enable you to open longer term positions, you won’t pay for overnight funding costs.

Trading forex options

Trading forex options will give you the buyer the right, but not the obligation to buy a currency pair on a set expiry date and a specified (strike) price. Puts and calls are the two types of forex options you can trade with us.

You can close your open position at any time since the market volatility, time until expiry, and the underlying market price have an influence on the option’s value. These a suited to you if you’re looking to open longer-term positions.

Example of a forex trade

Buying on the spot forex market

You’ll go long (‘buy’) on the spot price of a forex pair, if you expect the base currency’s value to rise against the quote. For example, if GBP/USD is trading at an underlying market price of 1.31236, with a spread of 1.5, the buy price would be 1.31244 and the sell price would be 1.31229. You'd buy at 1.31244 if you expect GBP to rise in value against USD. You’ll set a stop-loss to manage your risk.

Selling a spot forex market

You’ll short a forex pair on its spot price if you expect the quote currency to rise in value against the base. For example, if GBP/USD is trading at an underlying market price of 1.31236, with a spread of 1.5, the buy price would be 1.31244 and the sell price would be 1.31229. You'd sell at 1.31229 if you expect USD to rise in value against GBP.

Graphic showing how you’ll buy spot forex if you expect GBP to rise in value against USD, and how you’ll sell spot forex if you expect USD to rise in value against GBP.

How to practise forex trading

You can open a demo account to practise your FX trading. It’s free. Known as paper trading, the demo lets you to build your confidence and gain deeper insight into how FX markets work. You’ll get $10,000 in virtual funds, and you’ll be able to take positions using CFDs on spot, forwards and options markets.

What are the advantages and risks of forex trading?

	Advantage	Risk
Market volatility	Means that large movements can happen very quickly. This could result in sizeable returns	Means that large movements can happen very quickly. This could result in sudden and unexpected losses
Leverage	Trading on margin ‘gears’ your exposure. If you only put down a 3.3% deposit to open a larger position, this means your leverage ratio is 1:30. Every 1% rise in the market will mean a 30% profit on your deposit amount	When you trade on margin, it’ll increase your exposure. If you only put down a 3.3% deposit to open a larger position, this means your leverage ratio is 1:30. Every 1% drop in the market will mean a 30% loss to your deposit amount. Losses can exceed deposits
Market liquidity	Less complex to buy or sell, so you can exit or open trades quickly	Less complicated to buy or sell, which may contribute to market volatility

Learn more about trading on margin and the benefits of forex trading

How do you open a forex trading account?

Here are a few simple steps on how to open a forex trading account with us:

1. Fill in a form

Fill in an application form to open a live account with us. We’ll ask you about your trading knowledge to ensure you get the best experience.

2. Wait for verification

Verifying your identity usually takes a couple of days.

3. Fund your account and start trading

You can easily withdraw your money from your funded account, whenever you like.

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¹ Based on revenue (published financial statements, 2023).

Contact us

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. Professional Clients can lose more than they deposit.

The value of shares and ETFs bought through an IG stock trading account can fall as well as rise, which could mean getting back less than you originally put in. Please ensure you fully understand the risks and take care to manage your exposure.

IG does not issue advice, recommendations or opinions in relation to acquiring, holding or disposing of a CFD. IG is not a financial advisor and all services are provided on an execution-only basis. This communication is not an offer or solicitation to enter into a transaction and shall not be construed as such.

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