What is Forex Trading?

What you’ll learn

• Why forex prices always appear in pairs and what the base and quote currencies represent
• Who takes part: banks, funds, corporates, brokers and retail traders
• How an order travels from your platform towards the interbank market
• When each trading session opens and why that affects the spread you pay
• How to calculate the dollar cost of a trade before you place it
• The most common beginner mistakes, and what each one costs

The market in one sentence

The foreign exchange market is where one currency gets swapped for another, and the rate of that swap moves constantly. It is the biggest financial market on the planet: the final 2025 BIS Triennial Survey reported average OTC foreign exchange turnover of US$9.5 trillion per day in April 2025. There is no central venue, unlike a stock exchange. Banks, brokers and electronic venues quote prices to each other around the clock across a global network.

The pairs, hours and costs of doing that swapping at TabTrade are set out on the Forex Trading page; this lesson explains the market behind them.

Currencies trade in pairs

Nobody can trade the euro by itself. Buying euros always means buying them with another currency. That is why every forex quote contains two currencies:

The base currency (EUR) represents the unit you are buying or selling. The quote currency (USD) is the money used to pay for it. At the illustrative rate of 1.0842, one euro costs 1.0842 US dollars.

• When you expect the euro to strengthen against the dollar, you buy (go long) EURUSD.
• When you expect it to weaken, you sell (go short) EURUSD.

You don’t need a separate short-selling mechanism. Selling a pair simply means buying the quote currency rather than the base.

Majors, minors and exotics

Group	Example	Character
Majors	EURUSD, USDJPY, GBPUSD	Lowest spreads, most liquidity
Minors (crosses)	EURGBP, AUDJPY	No US dollar side, moderate liquidity
Exotics	USDTRY, USDZAR	Wide spreads, sudden moves, higher risk

The majors cost less to trade than the other groups, and their price behaviour is far less erratic.

The four sessions

The forex market operates 24 hours a day, five days a week, because trading simply follows the globe:

1. Sydney: thin liquidity, ranges are common
2. Tokyo: JPY and AUD pairs start moving
3. London: the largest session by volume; spreads are tightest here
4. New York: overlaps London for four hours, creating the busiest window of the day

The London - New York overlap is the busiest window of the day, and the day’s range has historically been concentrated in it.

What actually happens when you click Buy

1. Your platform forwards the order to your broker.
2. The broker may match it internally or send it to a liquidity provider.
3. A buy order fills at the ask; a sell order fills at the bid.
4. The difference between those two prices, the spread, is your entry cost and is taken the moment the trade opens.

Most beginners underestimate that final point. The moment a trade opens, it starts a little underwater. A trade must earn back the spread before it can put any money in your pocket.

How TabTrade prices this cost is set out on the zero average spreads on major forex pairs page.

How much does a trade actually cost?

To trade sensibly, you need to know the exact cost before you commit. The cost has two parts: the spread and, on some accounts, a commission.

Spread: the invisible entry fee

Every pair quotes two prices at the same time. The bid is what you can sell at; the ask is what you can buy at. The spread is the gap between them, measured in pips, the smallest common price increment.

If you buy at 1.0842 and the price sits still, your trade is instantly 2 pips in the red. It has to recover those 2 pips for you to break even.

For a standard lot (100,000 units of the base currency), 1 pip on EURUSD is worth $10. So a 2‑pip spread costs $20 per lot. Pip value scales straight down with size: a mini lot (10,000 units) is worth $1 per pip, and a micro lot (1,000 units) is worth $0.10 per pip. The same 2‑pip spread therefore costs $2 on a mini lot and $0.20 on a micro lot.

Spreads are not fixed. They widen when liquidity is thin, such as during the Sydney session or just before a major news release, and they are tightest while the London‑New York overlap is active.

Commission on the Edge account

Some brokers charge a separate commission instead of widening the spread. On TabTrade’s Edge account, for example, forex and metals trades pay a flat $3.50 USD per lot per side on MetaTrader 5. That means $7 per lot round turn (entry plus exit). In return, the spread drops dramatically. The published average Edge spread on EURUSD is 0.03 pips.

Worked example: EURUSD on the Edge account

The prices and costs below are illustrative rather than live quotes.

Take 1 standard lot of EURUSD, average spread 0.03 pips, commission $7 round turn.

Spread cost: 0.03 pips × $10 per pip = $0.30. Commission: $7.00. Total cost to open and close the trade: $7.30.

That is a concrete number. When you trade a single lot, the market needs to move at least 0.73 pips in your favour just to cover costs. If you trade 0.10 lots (one mini lot), the commission scales proportionally: $0.70 round turn, and the spread costs $0.03, so total $0.73. Knowing this lets you set realistic profit targets and stops.

On a Standard account there is no separate commission, but the spread is wider. You pay the cost inside the spread instead. Always check which account type you are using and calculate the total cost per lot before you place a trade.

A simple trade, step by step

Let’s walk through a EURUSD trade on an Edge account so you can see how the numbers fit together.

The setup

You have a $5,000 account. Your rule is to keep the total planned loss, including spread and round-turn commission, at or below 1% of the account, or $50. You identify an entry and an invalidation level 25 pips away before dealing costs.

The numbers

On this Edge example, the 0.03-pip spread plus the 0.70-pip commission equivalent makes the all-in cost 0.73 pips. Budget 25.73 pips in total: $50 ÷ (25.73 × $10 per pip per lot) = 0.194 lots. EURUSD trades in 0.01-lot steps at TabTrade, so round down to 0.19 lots.

At 0.19 lots, pip value is $1.90. A 25-pip adverse move loses $47.50 before dealing costs; the spread costs about $0.06 and commission is $1.33, for an estimated total loss of $48.89 before slippage. A 50-pip favourable move gains $95.00 before costs and about $93.61 after them.

How it unfolds

1. You click Buy. The platform fills your order at the ask, 1.0842 (for illustration).
2. The position immediately shows a small loss equal to the spread (0.03 pips) plus the commission on the entry leg.
3. Price moves. If it reaches your target, you close the trade at the bid, paying the exit commission. The net profit lands in your account.
4. If price hits your stop, the broker closes the trade at the prevailing bid, and you take the defined loss.

This is the mechanical reality behind every trade. There is no magic; only arithmetic.

Common beginner mistakes

The forex market is forgiving in the sense that you can practise for free, but it is unforgiving if you jump in without understanding the basics. Here are the mistakes that show up again and again.

Trading exotics too early

Exotic pairs like USDTRY or USDZAR can move 100 pips in a few minutes. Their spreads are wide, and slippage is common. A beginner with a small account can wipe out a large chunk of capital on a single bad fill. The majors carry narrower spreads and more depth.

Ignoring the spread

Traders often enter a trade on a 1‑minute chart, scalp for 5 pips, and forget that the spread alone is 2 pips. That leaves almost no room for error. The spread is quoted before entry, and it is part of the 5 pips being targeted.

Overleveraging

Leverage up to 1:1000 is available, but using all of it is dangerous. High leverage reduces the margin you need, which seems attractive, but it also amplifies every pip move. A 10‑pip move against a heavily leveraged position can exceed your whole account. Use a position size that respects your stop‑loss distance and your risk limit, not the maximum the broker allows.

Not using a stop loss

A position without a stop loss has no defined exit. The market can gap over a weekend or during a news event, and a stop can fill beyond its level. A stop loss defines the intended maximum loss before entry, and the position size follows from that stop distance.

Practise first. A demo account uses live pricing with no capital at risk. Traders commonly run ten or more trades in the majors there first. The aim is not profit; it is to make the mechanics feel boring.