TradeSimple
1 / 18
Start journaling free
Free Public Guide

Forex (FX) Trading Guide

The largest, most liquid market on earth - and the fastest place to blow up an account. This guide covers pairs, pips and lots, leverage, sessions, carry, event risk, and the risk rules that keep you in the game.

18 chapters · ~28 min read · Updated continuously

Chapter 1

Introduction

Forex is the biggest market in the world - roughly $7.5 trillion traded daily. It’s 24/5, leveraged, and full of traders chasing fast money. Most of them lose. The ones who don’t treat it like a job: tight risk, boring routines, and a journal that tells them what they actually do versus what they think they do.

This guide is the foundation. Pairs, pips, leverage, sessions, carry, and the rules that keep you alive long enough to get good. Read it once cover to cover, then come back whenever you’re tempted to skip a rule.

Leverage cuts both ways
FX brokers routinely offer 30×, 100×, even 500× leverage. That’s not an opportunity - it’s a way to blow up faster. Most of this guide is about using a fraction of what you’re offered.
Chapter 2

What Is Forex?

The forex (FX) market is where one currency is exchanged for another. Every FX trade is simultaneously a bet that one currency will rise and another will fall. There is no central exchange - trades happen over-the-counter (OTC) between banks, brokers, and traders.

Who’s in the market

Central banks
Move the biggest money through policy decisions. They set the rules the rest play under.
Commercial banks
The plumbing of FX - market makers quoting prices 24/5 for interbank flow.
Hedge funds & corporations
Corporations hedge revenue; funds speculate or arbitrage interest rate differentials.
Retail traders
Us. A small slice of daily volume, but a meaningful share of the broker-facing business.
Why retail can win
You’re nimble. You don’t need to move a billion dollars. A 1% edge compounded with discipline beats the “smart money” narratives sold to new traders.
Chapter 3

Pairs, Quotes & Cross Rates

Every FX trade is a pair: EUR/USD, USD/JPY, GBP/USD. The first currency is the base; the second is the quote. A price of 1.0850 on EUR/USD means 1 EUR costs 1.0850 USD.

Three pair buckets

Majors
USD vs another top-8 currency: EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD, NZD/USD. Tightest spreads, deepest liquidity. Start here.
Minors / Crosses
Pairs without USD: EUR/GBP, EUR/JPY, GBP/JPY, AUD/JPY. Wider spreads, more volatility, often driven by carry.
Exotics
USD vs an emerging-market currency: USD/TRY, USD/ZAR, USD/MXN. Wild spreads, big overnight moves, political risk. Avoid as a beginner.
Stick to majors for your first year
EUR/USD, USD/JPY, GBP/USD. These are liquid enough to be professional, slow enough to read, and cheap enough in spread that your edge isn’t eaten at entry.
Chapter 4

Pips, Lots & Position Size

Position sizing in FX is different from stocks. You aren’t buying shares - you’re committing to a lot size that determines how much each pip is worth.

Key units

Pip
The smallest price move most pairs make - 0.0001 for most, 0.01 for JPY crosses. On EUR/USD, 1.0850 → 1.0851 is 1 pip.
Pipette
A tenth of a pip (the 5th decimal). Used for precise quoting; ignore for sizing math.
Standard lot
100,000 units of the base currency. Pip value ≈ $10 on USD-quoted majors.
Mini lot
10,000 units. Pip value ≈ $1. Sensible sizing for most retail accounts.
Micro lot
1,000 units. Pip value ≈ $0.10. Essential for small accounts and learning.

Quick sizing math

Risk per trade (in account currency) = lot size × pip value × stop distance in pips. If you’re risking 1% of a $10,000 account ($100) with a 20-pip stop, you can trade 5 mini lots on EUR/USD ($1 per pip × 20 pips × 5 lots = $100).

Use the TradeSimple Position Sizer
Don’t eyeball this. The Calculator does the math from account size, % risk, and stop distance in two clicks.
Chapter 5

Leverage & Margin

Leverage lets you control a position larger than your account balance. It magnifies both gains and losses. A 100:1 account with $1,000 cash controls $100,000 of notional - a 1% move in the pair doubles or wipes out your account.

The honest numbers

  • US retail is capped at 50:1 on majors, 20:1 on minors (per CFTC / NFA).
  • EU retail is capped at 30:1 on majors (ESMA).
  • Offshore brokers offer 500:1+. That’s the maximum rope to hang yourself with.
Effective leverage is what matters
Don’t think about the broker’s cap. Think about effective leverage: total notional ÷ account balance. New traders should stay under 5× effective leverage. Under. Five.

Margin call & stop-out

Required margin
The collateral the broker holds for an open position. At 30:1, a $30,000 notional trade requires $1,000 margin.
Free margin
Account balance minus required margin on open positions. Drops as losses accumulate.
Margin call
Broker warns that free margin is running out. Add funds or close positions.
Stop out
Broker automatically closes positions to prevent negative balance. Usually at 20–50% margin level.
Chapter 6

FX Sessions & Liquidity

FX trades 24/5, but liquidity isn’t uniform. Different sessions favor different pairs, and the handful of hours where two sessions overlap produce the most volume and the cleanest moves.

The four sessions (all times UTC)

Sydney (22:00–07:00)
Thin. AUD and NZD pairs are most active. Not a beginner session.
Tokyo (00:00–09:00)
JPY pairs dominate. Ranges tend to be narrower than London/NY.
London (08:00–17:00)
The busiest session. EUR, GBP, and CHF pairs come alive. London open is one of the two highest-volume windows.
New York (13:00–22:00)
Peak overlap with London 13:00–17:00 UTC - the most liquid, cleanest, most tradeable window of the day.
Trade the overlap
If you can only trade a few hours a day, pick the London–NY overlap (13:00–17:00 UTC). Tightest spreads, deepest liquidity, best technical follow-through.
Chapter 7

Order Types & Execution

FX brokers quote a two-way price. The cost of doing business is the spread - the gap between bid and ask. A 0.8-pip spread on EUR/USD at 1 mini lot is $0.80 per round trip. Death by a thousand cuts if you over-trade.

Market order
Fills at the current ask (to buy) or bid (to sell). Fast but slips in fast markets.
Limit order
Fills at your price or better. Default for planned entries.
Stop order
Triggers a market order when price crosses a level. Usually used as a hard stop-loss or for breakout entries.
Stop-limit
Triggers a limit order at a level. Protects against slippage but may not fill in a fast move.
Trailing stop
A stop that moves with the trade in your favor. Locks in gains mechanically.
OCO (one-cancels-other)
Link two orders - when one fills, the other is cancelled. Used for bracket orders: stop + target.
Beware of variable spreads
Spreads widen around news releases and thin sessions. A 1-pip EUR/USD spread can become 5–10 pips at 12:30 UTC on NFP day. Don’t use market orders during known event windows.
Chapter 8

Technical Analysis for FX

FX respects technical analysis better than most markets because there’s no central auction, no earnings, and no single big buyer distorting flow. Levels, trends, and volatility structure do most of the work.

What to read

Support & resistance
Horizontal levels that show up on multiple timeframes. Your entry and exit anchors.
Trendlines & channels
Diagonal structure. Trading with the trend from the higher timeframe wins more often than fading it.
Moving averages
20, 50, 200 EMA. Used as dynamic support/resistance and trend filters. The 200 EMA on the 4H is a classic line in the sand.
Price action patterns
Flags, wedges, inside bars, engulfing candles. Cleaner in FX than in stocks because there’s no news-day distortion.
ATR (Average True Range)
Volatility measure. Use it to size stops rationally - a 0.3 × ATR stop is suicide on a quiet pair; a 2 × ATR stop wastes R on a wild one.
Multi-timeframe is not optional
Pick direction on the 4H or daily. Time entries on the 1H or 15m. Don’t flip direction just because the 5-minute chart disagrees - that’s how traders die.
Chapter 9

Fundamentals & Economic Events

Currencies move on interest rate expectations, growth, andgeopolitics. You don’t need a macro PhD; you need to know which releases move your pairs and when they drop.

The releases that actually move markets

  • Central bank rate decisions - FOMC (Fed), ECB, BoE, BoJ, RBA. Biggest single-event moves.
  • NFP / US employment - First Friday of each month, 13:30 UTC. Wild for USD pairs.
  • CPI (inflation) - Monthly from each major economy. Drives rate expectations.
  • GDP - Quarterly. Slower moves but lasting repricing.
  • Central banker speeches - Powell, Lagarde, Bailey. Can move pairs 30+ pips on a single sentence.
Don’t hold through releases unless you’re explicitly trading them
Close directional positions 5–10 minutes before a known release. Or size down to 25% of normal. Otherwise you’re gambling on the headline.
Chapter 10

Carry & Swap

Every FX pair pays or charges you overnight interest based on the difference between the two currencies’ policy rates. This is the swap (also called rollover).

How it works

  • Holding AUD/USD long when AUD rates > USD rates = positive swap (you earn).
  • Holding AUD/USD short in the same environment = negative swap (you pay).
  • Swap is credited/debited daily at the broker’s rollover time, typically 22:00 UTC.
  • Wednesday is triple-swap day - three days of interest are booked to cover the weekend.

The carry trade

Long a high-yielder, short a low-yielder, collect the spread. Simple in concept; brutal when it breaks - carry trades unwind fast on risk-off days, often wiping months of swap gains in a single session. Don’t stack multiple carry positions without a correlated-risk plan.

Chapter 11

Account Management

FX leverage makes position sizing non-negotiable. One bad trade at 20× leverage can erase a month of wins.

Hard rules

  • 1% max risk per trade for new traders. 2% is the ceiling, not the default.
  • Total open risk under 5% of account across all positions.
  • Max 3 open positions. Correlated pairs (EUR/USD + GBP/USD) count as one.
  • Hard stops always. No “mental stops.” FX moves 30+ pips in minutes on news.
  • Never add to losers without a mechanical, pre-planned average-down strategy.

Profit-taking

Tranches. First third at 1R. Second third at 2R. Trail the last third with a 1-ATR trailing stop. Repeat until boring.

Chapter 12

Strength of a Trade

Grade every trade before entry. If it fails on two axes, skip it.

  1. 1
    Trend
    4H and daily direction aligned. No counter-trend entries in your first year.
  2. 2
    Level
    Price at a clear support/resistance, Fib zone, or prior swing. No middle-of-range entries.
  3. 3
    Catalyst
    Session open, news aftermath, or a clean technical break. No catalyst, no conviction.
  4. 4
    Risk-to-reward
    Minimum 2:1 R:R. 3:1 is the goal. Under 2:1 you need to win more than half the time just to break even after spread.
Chapter 13

Trading Psychology

FX psychology is especially punishing because the market never closes. There’s always a trade to chase, a move to miss, a news print to react to. Protecting your attention is the job.

Core rules

  • Fixed trading window. Same hours, same desk, same routine.
  • Max 3 trades per day. Force quality over quantity.
  • Journal every trade - setup, rules, emotional state, reflection.
  • Hard stop on losses. After 2× your daily risk limit, close the platform for the day.
  • Weekly review on Saturday. Wins, losses, rule breaks. Be honest.
  • No trading on illness, alcohol, or after bad sleep. Non-negotiable.
The TradeSimple advantage
Your journal isn’t optional. Over 50 FX trades logged in TradeSimple, your actual edge and your actual rule-breaks become impossible to hide from yourself.
Chapter 14

Growing a Small Account

You don’t grow a $1,000 FX account by over-leveraging. You grow it by proving process and surviving until the account can actually move the needle on the effort.

Phase 1 - under $5K
Micro lots only. Risk 0.5–1% per trade. Target: 100 trades logged with clean entries and exits. Forget P&L.
Phase 2 - $5–25K
Mini lots. Risk 1% per trade, max 2 open positions. Focus on 1–2 setups mastered on 1–2 pairs.
Phase 3 - $25K+
Full setup ecosystem, playbook-graded trades. Consider prop-firm scaling on a separate eval account.
Chapter 15

Prop Firms for FX

FX is the most prop-firm-friendly market. Firms like FTMO, The5ers, MyForexFunds (where still operating), and Funded Next let you trade their capital in exchange for an evaluation fee and a profit split (usually 80/20 in your favor after passing).

What you’re buying

  • Larger notional without personal capital risk beyond the fee.
  • Rules that force discipline - daily drawdown, total drawdown, minimum trading days.
  • Profit splits on funded accounts - typically 70–90%.

What to watch out for

  • Aggressive daily drawdown rules (4–5% daily) - one volatile session can fail you.
  • Consistency rules that penalize a single outsized win day.
  • Scaling plans gated by time, not just performance.
  • Reputation risk - use firms that have paid out publicly and have audited broker backing.
Track challenges in TradeSimple
Our Prop Firm Trackermonitors daily drawdown, total drawdown, profit targets, and minimum trading days live as you log trades - so you don’t blow the eval on an unrealized rule break.
Chapter 16

Taxes

FX tax treatment is jurisdiction-specific and can be unusual. In the US, FX falls under IRC Section 988 (ordinary income) by default, with an optional 1256 election (60/40 long/short treatment) for major currency futures. In the UK, spread-betting FX is tax-free; CFD trading isn’t. EU and other jurisdictions vary widely.

  • Track every trade with entry, exit, P&L in your account currency, and the realized date.
  • Set aside 20–35% of realized profits for taxes automatically.
  • Keep broker statements for at least 7 years.
Not tax advice
Talk to a CPA who understands trader accounts in your jurisdiction before filing. Mistakes here are expensive.
Chapter 17

Glossary

ATR
Average True Range. A volatility measure used to size stops and targets rationally.
Ask
Lowest price a seller (broker) will accept - what you buy at.
Base currency
The first currency in a pair. On EUR/USD, EUR is the base.
Bid
Highest price a buyer will pay - what you sell at.
Carry trade
Long a high-interest currency, short a low-interest one, to collect the rate differential.
CFD
Contract for difference. A leveraged derivative that tracks the price of an underlying asset. Popular in EU FX retail.
Cross
A pair that doesn’t include USD (e.g. EUR/GBP, AUD/JPY).
Drawdown
Peak-to-trough decline in account equity, expressed as a %. Prop firms have hard limits on this.
ECN
Electronic Communication Network. A broker model that routes your order directly to liquidity providers (tighter spreads, commission-based).
Exotic
A pair involving an emerging-market currency (e.g. USD/ZAR, USD/TRY). Wide spreads, big overnight moves.
Leverage
Ratio of notional exposure to account balance. 30:1 means $1,000 controls $30,000.
Liquidity
How deeply you can trade without moving the price. Majors > minors > exotics.
Lot
Standardized trade size. Standard = 100k units, mini = 10k, micro = 1k.
Margin
Collateral the broker holds for an open leveraged position.
Margin call
Broker warning that equity is approaching the stop-out level.
NFP
Non-Farm Payrolls. US monthly jobs report, first Friday, 13:30 UTC. Major USD mover.
Pip
Smallest normal price move. 0.0001 for most pairs, 0.01 for JPY crosses.
Pipette
One-tenth of a pip - the 5th decimal (or 3rd on JPY). Used for sub-pip quoting.
Quote currency
The second currency in a pair. On EUR/USD, USD is the quote.
Rollover / Swap
Overnight interest credited or debited on held positions, based on the rate differential between the two currencies.
Slippage
Difference between expected fill and actual fill. Widens around news and thin sessions.
Spread
Bid-ask gap. The broker’s cut on every round trip.
Stop-loss
Order that closes a losing position at a predetermined level.
Stop-out
Broker auto-closes positions when margin level hits a threshold (typically 20–50%).
Take-profit
Order that closes a winning position at a predetermined level.
Chapter 18

Next Steps in TradeSimple

Reading is step one. Reps come from journaling, sizing discipline, and a playbook you stick to. Here’s how to put TradeSimple to work on FX:

  • Journal every trade - pair, session, setup, stop in pips, R-multiple, reflection.
  • Use the Position Sizer. The Calculator turns account size + stop in pips + % risk into an exact lot size.
  • Build a playbook. Turn your 2–3 repeatable FX setups into graded checklists.
  • Backtest on historical candles before risking capital on a new pair or session.
  • Track prop firm challenges. FTMO / The5ers drawdown live in theProp Firms tab as you log trades.