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Forex trading (also known as “foreign exchange” or “FX trading”) is the world's largest financial market. Find out what it is and how it works below.
Let's start with the basics. Put simply, forex trading is the act of buying one currency (the base currency) and selling another currency (the quote currency). You then have to attempt to predict whether the base currency will strenghten or weaken against the quote currency.
If the base currency strengthens, the market will rise (or appreciate), and if the base currency weakens then the market will fall (or depreciate). If you believe the market will rise, then you would go long (buy), and if you believe the market will fall, you would go short (sell).
The subsequent movement of the currency pair within the market, following your decision of going long or short, will determine whether you make a profit or loss on the trade.
Forex trading is one of the few financial markets that is open for 24 hours - from Sunday evening all the way through until Friday Night.
As forex is an over-the-counter (OTC) market, these is no central exchange or physical location for trades. This leads to greater flexibility when it comes to trading hours, allowing traders to enter liquid markets at any hour around the clock.
Forex currency pairs are typically quoted to five decimal places. The fluctuation of the fourth decimal point (1.0964) is known as a pip, which stands for percentage in points. It's the movement and 'capture' of these pips that will determine your overall profit and loss while trading forex.
Forex is a leveraged product. Leverage gives you the ability to control larger trade sizes with a smaller initial outlay - allowing for the potential of increased profits, but also leaving you vulnerable to greater loses.
The forex market facilitates over $5 trillion in turnover everyday. Let's have a look at some of the reasons why forex trading is so popular among traders.
Risk Warning: Derivative products are leveraged products and can result in losses that exceed initial deposits. Please ensure you fully understand the risks and take care to manage your exposure and seek independent advice if necessary.
It's important for you to consider the relevant legal documents (for clients of TF Global Markets (Aust) Pty Ltd) this includes our Product Disclosure Statement and Financial Services Guide, before you decide whether or not to acquire any of our products.
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