What Is Forex Trading — Market Fundamentals

Forex Trading Defined

Forex trading means simultaneously buying one currency while selling another, with the goal of profiting from changes in their relative value. For example, if you believe the euro will strengthen against the US dollar, you could buy euros using dollars now, hoping to exchange them back later at a more favorable rate.

Unlike buying a stock, where you simply own a share of a company, a forex trade always involves a pair: you are betting on how one currency will perform relative to another, not in isolation.

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How Traders Try to Profit

Suppose you buy EUR/USD at a price of 1.0850, meaning 1 euro costs 1.0850 US dollars. If the price later rises to 1.0900, each euro you hold is now worth more dollars, and you could sell to lock in a profit. If the price instead falls to 1.0800, you would be at a loss if you closed the trade there.

Because prices move constantly due to economic news, interest rates, and global events, traders look for patterns and information that help them anticipate which direction a currency pair is likely to move.

**A Simple Profit Scenario:** You buy 1,000 EUR/USD at 1.0850, spending $1,085. The price rises to 1.0900. Selling now gives you $1,090 — a gain of $5 before any costs. The $5 difference comes from the 0.0050 price increase multiplied by 1,000 units.

[Read the lesson: What Is Forex Trading?](/learn-to-trade/market-fundamentals/what-is-forex-trading)

Who Trades Forex?

Participants range from huge central banks managing national currency reserves, to commercial banks facilitating international trade, to multinational companies hedging overseas revenue, to individual retail traders speculating on price movements through a broker.

Retail traders — individuals like you — typically access the market through an online broker, which connects smaller trades into the larger interbank market.

[Read the lesson: What Is Forex Trading?](/learn-to-trade/market-fundamentals/what-is-forex-trading)