HFM information and reviews
Octa information and reviews
FXCC information and reviews
FxPro information and reviews
FBS information and reviews
Vantage information and reviews

Understanding the basics of forex trading and the role of CFDs

15 May 2023

Trading in the forex market demands more than one might expect at first glance. Not only does it require a significant investment of time and money, but it also necessitates a great deal of intellectual effort and understanding. Moreover, due to the intense emotions it often generates, most traders attempt to manage and restrict their responses. It necessitates discipline and structure, and frequently influences and shapes one's everyday routine and overall existence. If you become fully committed to trading, you will quickly realise that it is more than just a pastime. As a result, numerous traders have developed various plans, tactics, and ways to deal with the demands of trading.

What is forex trading?

Forex trading involves trading one currency for another with the goal of profiting from price movements. All forex traders aim to make profits by predicting price movements, whether the price of an instrument will go up or down. When a trader enters a trade, they are essentially taking a position. If a trader believes that the price of a currency will rise during the trade, it is referred to as taking a long position or going long. Conversely, if a trader anticipates a price decrease, it is known as taking a short position or going short.

How currencies are traded

All currencies are traded in pairs. A currency pair represents the value of two currencies relative to each other. Take the EUR/USD pair as an example, where the Euro is the first currency and the US dollar is the second currency. The base currency is the Euro, and the quote currency is the US dollar. If a trader observes a quote of $1.31 for the EUR/USD pair, it means that the pair is being traded at $1.31, indicating that they can sell 1 Euro and acquire $1.31 US dollars.

Likewise, whenever the value of a currency fluctuates, it does so relative to another currency. If the GBP/USD quote shifts from 1.23 to 1.37, it indicates that the British pound has gained value or increased in comparison to the US dollar. Alternatively, it implies that the US dollar has lost value or decreased in relation to the British pound, as it would require more dollars to purchase 1 pound.

The major currency pairs traded by forex traders are the following: EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD, NZD/USD.

Understanding the basics of forex trading and the role of CFDs

Top forex pairs

The most widely traded currency pairs are the EUR/USD, USD/JPY, GBP/USD, and USD/CHF. These pairs have significant trading volumes and represent the largest economies globally. Forex traders have a preference for trading these currencies due to their high volumes, which typically result in narrower spreads. In addition to these four pairs, there are also "commodity currencies" and "cross pairs" available for trading in the forex market.

The Canadian dollar, Australian dollar, and New Zealand dollar are the three primary commodity currencies that experience the highest trading volumes. Additionally, the Japanese yen is also recognised as a commodity currency due to its dependence on oil price fluctuations.

GBP/JPY, EUR/JPY, EUR/CHF, and EUR/GBP are known as cross pairs. With the creation of “currency crosses,” you can now convert your currency directly into your desired one, instead of having to convert them into US dollars first, as it used to happen in the past.

More forex terms to know


With the popularity and accessibility of forex trading, more and more traders choose to trade forex through CFDs. CFDs refer to Contracts for Difference which is an agreement between a trader and a broker to pay the difference between the open and closing price of an instrument. There are no physical currencies exchanged when trading forex through CFDs.

Benefits of trading forex through CFDs

Try CFD trading with a regulated broker

Choosing a regulated broker to trade CFDs is key as they can provide support, security and safety when trading. IronFX is a longstanding name in CFD trading and an ideal place to explore currency trading. IronFX offers more than 80 currency pairs which you can trade with superb trading conditions via the leading MetaTrader 4 platform.

If you are interested in CFD trading, open a demo account with IronFX and start trading. A demo account will give you access to the financial markets which you can trade with virtual funds and experience forex trading without risk.

Alternatively, if you are a seasoned trader, you can open a live trading account and explore all that IronFX has to offer. 

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 61.8% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Disclaimer: This information is not considered as investment advice or an investment recommendation, but is instead a marketing communication.

Share: Tweet this or Share on Facebook


FP Markets Increases its Commodity Offering, Adding Brent Oil, Cotton and Sugar Futures
FP Markets Increases its Commodity Offering, Adding Brent Oil, Cotton and Sugar Futures

In response to increased client demand for flexibility in the commodities market and in line with its commitment to deliver comprehensive trading solutions, FP Markets has announced the expansion of its commodity offering.

16 Apr 2024

FP Markets Named Best In Class for Commissions & Fees, Algo Trading and MetaTrader
FP Markets Named Best In Class for Commissions & Fees, Algo Trading and MetaTrader

Celebrating nearly two decades in the Forex and CFDs industry, FP Markets continues to excel in meeting the needs of traders and investors, earning it repeated industry acknowledgement in numerous key areas.

27 Mar 2024

RoboForex revolutionises financial trading with its Infinity partner program
RoboForex revolutionises financial trading with its Infinity partner program

In an increasingly competitive financial market, innovation becomes the engine of success. Recognising this need, RoboForex takes a bold step into the future with the launch of its Infinity Program.

6 Mar 2024

FP Markets Partners with Industry-Leading Platform Provider TradingView
FP Markets Partners with Industry-Leading Platform Provider TradingView

FP Markets’ customers around the world can now gain access to TradingView's advanced charts and analysis, powerful trading tools and interact with the world's largest social network of traders...

22 Jan 2024

FxPro Unveils a Lucrative Global Affiliate Program
FxPro Unveils a Lucrative Global Affiliate Program

FxPro, a leading online broker, is thrilled to introduce its new and highly anticipated global Affiliate Program, promising partners an enticing opportunity to earn substantial commissions...

22 Jan 2024

Introducing the ModMount VIP Account: Elevate Your Trading Game
Introducing the ModMount VIP Account: Elevate Your Trading Game

In the world of trading, success often depends on having the right tools and conditions to navigate the markets effectively. With the ModMount VIP Account, traders...

19 Jan 2024

Editors' Picks

The Top Forex Expert Advisors 2024: Performance, Strategy, and Reliability Review

An annual roundup reviewing the most successful Forex Expert Advisors (EAs) based on their performance, strategies employed, reliability, and user feedback. This piece would provide insights into which EAs have been market leaders and why.

The Evolution of Forex Expert Advisors: Navigating the Path of Technological Revolution

The concept of automated trading has been around for decades, but the accessibility and sophistication of Forex EAs have seen significant advancements in the past few years. Initially, automated trading systems were rudimentary, focusing on simple indicators like moving averages.

The Impact of EAs on Forex Trading: A Double-Edged Sword

By enabling continuous, algorithm-based trading, EAs contribute to the efficiency of the Forex market. They can instantly react to market movements and news events, providing liquidity and stabilizing currency prices through their high-volume trading activities.

MultiBank Group information and reviews
MultiBank Group
XM information and reviews
FP Markets information and reviews
FP Markets
FXTM information and reviews
AMarkets information and reviews
BlackBull information and reviews

© 2006-2024 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.