Forex Trading Explained: A Plain-English UK Guide

By Rise Together FX team · 10 min read

Currency-pair quote board listing pairs such as EUR/USD and AUD/CAD with bid and ask columns left blank

Forex, short for foreign exchange, is the buying and selling of one currency for another. This guide explains how the market works, what currency pairs, pips, lots and spreads are, how people in the UK usually trade forex, what leverage does, who regulates whom, and why most retail accounts that trade these products lose money.

Trading forex and CFDs is high risk and you can lose all the money you put in. Most retail CFD accounts lose money. This article is general education, not financial advice.

What the forex market is

Every time someone swaps pounds for euros before a holiday, a company pays a supplier abroad, or a bank moves money between countries, currencies change hands. Together, these exchanges make up the foreign exchange market.

It is the largest financial market in the world. The Bank for International Settlements, which surveys the market every three years, found that FX trading averaged $9.6 trillion a day in April 2025. Sales desks in the UK, the US, Singapore and Hong Kong accounted for 75% of that trading. Most of it is between banks, other financial institutions and companies; individual retail traders are a small part of it.

A few features make forex different from, say, buying shares:

There's no single exchange. Currencies trade "over the counter" between banks and dealers around the world.
It runs around the clock on weekdays. Trading moves between financial centres as the day goes on, from Sunday evening to Friday evening UK time. Our guide to forex market hours explains the sessions.
You always trade one currency against another. You can't just "buy the euro"; you buy it with something else.

Currency pairs: base, quote, majors and crosses

Base and quote currency

Currencies are quoted in pairs, such as EUR/USD or GBP/JPY. The first currency is the base; the second is the quote. The price tells you how much of the quote currency one unit of the base currency costs.

If EUR/USD is quoted at 1.1000, one euro costs 1.10 US dollars.

Buying and selling

Buying a pair (going "long") means you expect the base currency to rise against the quote currency.
Selling a pair (going "short") means you expect the base currency to fall against the quote currency.

Either way, you lose money if the price moves the other way.

Majors, minors and crosses

In everyday trading language:

Majors are the most traded pairs, usually pairs that include the US dollar, such as EUR/USD, GBP/USD and USD/JPY.
Crosses are pairs that don't include the US dollar, such as EUR/GBP or GBP/JPY.
Minors or exotics are less traded pairs, often with wider spreads.

Be aware that UK rules use their own definition. For the FCA's leverage limits, a "major foreign exchange pair" is any two of the US dollar, euro, Japanese yen, pound sterling, Canadian dollar and Swiss franc. Every other pair counts as "minor", and that changes the maximum leverage a UK-authorised firm can offer a retail client on it (see the leverage section below).

Pips, lots and spreads

Pips

A pip is a standard small unit of price movement. For most pairs it's the fourth decimal place (0.0001). For pairs quoted against the Japanese yen, it's usually the second decimal place (0.01). If EUR/USD moves from 1.1000 to 1.1025, it has moved 25 pips.

Lots

Trade size is measured in lots. On many forex accounts:

Size	Units of the base currency
1 standard lot	100,000
1 mini lot (0.10)	10,000
1 micro lot (0.01)	1,000

Brokers set these themselves. In MetaTrader 5, the "contract size" in a symbol's specification shows how many units one lot represents. Our guide to lot sizes goes further.

What a pip is worth

The money value of a pip depends on the trade size and the pair.

Illustrative example (made-up trade to show the mechanics; not based on any real account or on our strategy): on EUR/USD, a pip is 0.0001 US dollars per euro. A 1-lot trade (100,000 euros) therefore gains or loses about $10 for each pip the price moves; a 0.10-lot trade, about $1 per pip. A UK account would see that converted into pounds. A 50-pip move against a 1-lot trade would be a loss of about $500, before costs.

Spreads

Every pair has two prices: the bid (the price at which you can sell) and the ask (the price at which you can buy). The gap between them is the spread, and it's the most basic cost of trading.

Illustrative example (made-up prices; not based on any real account or on our strategy): if EUR/USD is quoted at 1.0998 / 1.1000, the spread is 2 pips. A trade bought at 1.1000 would show a loss of 2 pips straight away, because it could only be sold at 1.0998. On a 0.10-lot trade, that's about $2.

Spreads can widen sharply in fast markets, around major news, or when markets are thin, such as late on a Friday or just after the weekend opening. Other costs can include commission and swap (an overnight financing charge on positions held past the daily cut-off). Our glossary defines these terms.

How UK retail traders access forex: CFDs and spread bets

Most individuals in the UK don't exchange currencies outright when they "trade forex". They use a derivative that pays out according to the price movement, without owning the currency:

Contracts for difference (CFDs): you agree with a provider to exchange the difference in the price of a pair between when you open and close the trade.
Spread bets: you bet an amount per pip (for example £1 per pip) on whether the price will rise or fall.

The FCA treats spread betting and "rolling spot forex" as part of the CFD product family it regulates for retail consumers. Both are leveraged, so gains and losses can be large compared with the money put in. They differ in how they're structured and in how they may be taxed, which depends on individual circumstances. We compare them in CFD vs spread betting.

Leverage and margin in brief

Leverage lets a trader control a larger position than the money they put down. The money set aside to keep a position open is called margin.

For retail clients of UK-authorised firms, FCA rules set minimum margin requirements:

Major pairs (FCA definition): at least 3.33% of the position's value (30:1 leverage).
Minor pairs and gold: at least 5% (20:1 leverage).

Illustrative example (made-up trade; not based on any real account or on our strategy): a 0.10-lot EUR/USD trade controls 10,000 euros. At the 3.33% minimum margin for a major pair, the broker sets aside about €333 (converted into the account currency). If the price moves 1% against the trade, the loss is about €100: around 30% of the margin used.

The same FCA rules require UK-authorised firms to close a retail client's positions when the account's equity falls below 50% of the margin needed to keep them open, and limit a retail client's losses to the money in their account (negative balance protection). Brokers outside the UK may offer much higher leverage, which magnifies losses further, and may not offer the same protections. Read more in What is leverage in forex?

Platforms: what MetaTrader 5 is

A trading platform is the software used to see prices, place trades and manage an account. One of the most widely used for forex is MetaTrader 5 (MT5), made by a software company called MetaQuotes. Brokers license it and give their clients access, so the same software can connect to many different brokers.

A few things worth knowing:

The platform isn't the broker. MT5 is software. The company holding your money and taking the other side of your trades is the broker, and that's who needs checking.
Two passwords. An MT5 account has a master password, which allows trading, and an investor password, which allows viewing the account but not trading.
Symbol specifications. Right-clicking a pair in MT5's Market Watch and choosing "Specification" shows the broker's trading conditions for it, including contract size and swap type.
Automation. MT5 can run programs called expert advisors (EAs) that trade automatically.

This isn't a recommendation of any platform or broker.

Who regulates what in the UK, and checking a broker

The Financial Conduct Authority (FCA) authorises and supervises firms that offer CFDs and spread bets to people in the UK. Almost all financial firms that deal with UK consumers must be authorised by the FCA. You can check a firm on the FCA's Firm Checker or the Financial Services Register, which show what a firm has permission to do.

Things to watch for:

Similar names. International broker groups often have a UK company and overseas companies with almost the same name. The FCA advises checking a firm's terms and conditions to see which company you'd actually contract with and where it's incorporated.
Offshore redirection. In October 2025 the FCA warned that some firms use high-pressure tactics to persuade clients to give up retail protections, by opting up to "professional" status or moving to offshore providers. It also warned about finfluencers promoting unregulated offshore firms.
Unauthorised firms. The FCA says that if you deal with an unauthorised firm, you won't be covered by the Financial Ombudsman Service or the Financial Services Compensation Scheme.

Why most retail CFD accounts lose money

FCA rules require CFD firms to show a standard risk warning that includes the percentage of their own retail client accounts that lose money. Those percentages differ from firm to firm and change over time, so check the figure on any provider's own website. The underlying message is the same for all of them, and it's in the warning at the top of this page: most retail accounts lose money.

Common reasons include:

Leverage: small price moves become large gains or losses relative to the deposit.
Costs: spreads, commissions and swaps are paid on every trade, win or lose.
Behaviour: closing winners early, holding losers too long, or trading too often.
Volatility and gaps: prices can jump past intended exit levels.

We look at this in more depth in why most retail CFD traders lose money.

Where automation and copy trading fit

Not everyone places trades by hand. Two common alternatives are:

Automated trading: a program (such as an MT5 expert advisor) opens and closes trades according to fixed rules. See automated forex trading explained.
Copy trading: trades from one account are repeated in another, usually by software. See What is copy trading?

Neither removes any of the risks above. An automated strategy follows its rules in every market, including markets where those rules lose money. Copying a strategy means taking on its losses as well as its gains, at the leverage and costs of your own account.

Next guides

Forex glossary: the key terms in one place
Forex lot size explained
What is leverage in forex?
CFD vs spread betting
Forex market hours in the UK