What is forex trading?
Written by an ex-institutional trader. A clear, beginner-friendly explanation of what forex trading is, how trading a currency pair works (shown with a diagram), why people trade it, how it is done in Australia under ASIC, and the honest risks.
Direct answer
Forex trading is buying one currency while simultaneously selling another, to profit from a change in the exchange rate between them. Currencies are always traded in pairs, such as EUR/USD or AUD/USD, and the price tells you how much of the second currency one unit of the first is worth. If you expect the first currency to strengthen, you buy the pair (go long); if you expect it to weaken, you sell (go short).
The foreign exchange market is the largest and most liquid financial market in the world, open 24 hours a day, five days a week. Most retail forex trading in Australia is done as CFDs through an ASIC-regulated broker, using leverage capped at 30:1 on major pairs. It is fully legal and regulated, but it is also high-risk: ASIC-mandated disclosures show 70 to 85 percent of retail accounts lose money. Forex trading is a skill-based activity, not easy money.
What forex trading is
Forex trading, short for foreign exchange trading, is buying one currency while selling another to profit from a change in the exchange rate between them. You have already done a basic version of it if you have ever changed Australian dollars into US dollars for a trip; forex trading is doing that to profit from the price move rather than to spend the money.
The key thing that makes it trading rather than just changing money is that you do both sides at once and you can profit whether a currency rises or falls. Currencies are always quoted and traded in pairs, because the value of one currency only means anything relative to another. The forex market is the largest financial market in the world by volume, and it runs around the clock from Monday morning to Friday night.
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How a currency pair works
A forex price is a quote for a pair of currencies. Take EUR/USD at 1.0850. The first currency, the euro, is the base currency, the one you are buying or selling. The second, the US dollar, is the quote currency, the one the price is measured in. The number tells you how much of the quote currency one unit of the base is worth.
So buying EUR/USD means buying euros and selling dollars in one action, betting the euro will strengthen against the dollar. Australian traders most often watch the AUD pairs, such as AUD/USD, where the Australian dollar is the base. Each one-unit move in the fourth decimal of most pairs is called a pip, the standard unit traders measure moves in.
Going long and short
One of the features that defines forex trading, and trading in general, is that you can profit in both directions.
- Going long means buying the pair because you expect the base currency to strengthen against the quote currency. Buy EUR/USD at 1.0850, and if it rises to 1.0900 you profit.
- Going short means selling the pair because you expect the base currency to weaken. Sell EUR/USD at 1.0850, and if it falls to 1.0800 you profit.
Being able to go short is why traders can make money in falling markets as easily as rising ones, and it is one reason most retail forex trading uses CFDs, which make shorting straightforward. The trade-off is that the same two-way exposure, combined with leverage, means losses arrive just as easily as gains.
Why people trade forex
Forex attracts traders for a handful of genuine reasons:
- It is the most liquid market. Huge daily volume means tight spreads on the major pairs and the ability to enter and exit easily.
- It runs 24 hours, five days a week. The market follows the sun through the Sydney, Tokyo, London and New York sessions, so you can trade around a job.
- Leverage makes small accounts viable. A modest deposit can control a meaningful position, though this magnifies losses as well as gains.
- Low barriers to entry. Opening an account is quick and the minimums are low.
Those same features cut both ways. The accessibility and leverage that make forex appealing are also why so many beginners lose money quickly. The market does not care how easy it was to start.
Forex trading in Australia
In Australia, retail forex trading is done through ASIC-regulated brokers, almost always as CFDs (contracts for difference) rather than by owning the currency directly. It is fully legal and well-regulated: brokers must hold an Australian Financial Services Licence, and ASIC imposes a 30:1 leverage cap on major pairs, negative balance protection, segregated client funds and AFCA dispute access.
This is also where the honest part belongs. ASIC requires brokers to publish the share of retail accounts that lose money, and those figures sit consistently in the 70 to 85 percent range. Forex trading is a legitimate, regulated activity with real skill behind the profitable minority, but it is not easy money, and the marketing that presents it that way is the opposite of the truth. Treat it as a difficult skill to learn, not a shortcut.
How to start
If you want to learn forex trading properly, a sensible order is:
- Learn the fundamentals first. Understand pips, spread, leverage and margin before risking anything.
- Practise on a demo account. Trade with virtual money to learn the platform and test an approach at no risk.
- Choose an ASIC-regulated broker. Verify the licence and compare cost on the best forex brokers in Australia ranking.
- Start small and manage risk. Risk a small fixed percentage per trade, sized with the position size calculator, and only use money you can afford to lose.
The full step-by-step is in how to trade forex in Australia, and the wider context in the forex trading Australia guide.
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Examples use indicative prices for illustration. Last reviewed: 2026-06-01.
Frequently asked questions
What is forex trading in simple terms?
Forex trading is exchanging one currency for another to try to profit from the change in their exchange rate. You always trade a pair, like EUR/USD, buying one currency and selling the other at the same time. If the currency you bought rises in value against the one you sold, you profit; if it falls, you lose. It is the same idea as changing money for a holiday, except done to profit from the price movement rather than to spend.
How does forex trading make money?
You make money when the exchange rate moves in the direction of your trade. If you buy EUR/USD at 1.0850 and the euro strengthens so the pair rises to 1.0880, you can close for a profit of 30 pips. If you expect a currency to fall, you can sell the pair (go short) and profit from the decline. Profit equals the price move multiplied by your position size, minus the spread and any commission. Losses work exactly the same way in reverse.
Is forex trading legal in Australia?
Yes. Forex trading is fully legal for Australian residents through brokers that hold an Australian Financial Services Licence from ASIC. ASIC regulates the market with consumer protections including a 30:1 leverage cap on major pairs, negative balance protection, segregated client funds, and AFCA dispute resolution. Trading through unlicensed offshore brokers is not illegal for you, but none of those protections apply, so it is strongly inadvisable.
How much money do you need to start forex trading?
Technically very little: several ASIC brokers have no minimum deposit, and you can trade micro lots. Practically, to manage risk sensibly by risking a small percentage of your account per trade, most beginners need at least AUD 500 to AUD 1,000. Below that, position sizing becomes awkward. The more important point is to only ever trade money you can afford to lose, and to practise on a free demo account before risking real capital.
Is forex trading good for beginners?
Forex is accessible to beginners, but it is genuinely difficult, and most beginners lose money. ASIC-mandated broker disclosures show 70 to 85 percent of retail accounts lose. The market is open and the barriers to entry are low, which makes it easy to start, but consistent profit requires skill, discipline and risk management that take time to build. A beginner should start on a demo account, learn the fundamentals first, and risk only small amounts when moving to real money.
What is the difference between forex and CFD trading?
Forex is the underlying market, the exchange rate between currencies. A CFD, or contract for difference, is the instrument most Australian retail traders use to trade that market without owning the currency. Almost all retail forex trading in Australia is technically CFD trading, even when it is just called forex. The CFD lets you use leverage and go short easily. The two terms are used interchangeably in practice for retail trading.
