Forex trading means opening an account with a broker, depositing funds (margin) as collateral, and trading at an agreed credit level (leverage), often up to 400 times. Traders can freely buy or sell currencies, with profits and losses automatically settled to their investment account. This lets traders use relatively small amounts of capital to gain larger exposure, diversify risk, and profit from exchange rate movements. In general, traders are speculating on the direction of the underlying asset’s price.

A CFD is a derivative instrument that lets investors seek potential profit from anticipated price movements in financial products such as indices, forex and commodities.

The main drivers of currency exchange demand are import/export businesses, overseas investment needs, multinational corporations hedging currency risk, and investment demand from institutions and individuals.

Key participants include investment banks, commercial banks, central banks, hedge funds, large corporations, trading firms and individual investors.

High liquidity (large volume, difficult to manipulate), flexible trading hours (near 24/5 operation with T+0 settlement), and a low entry barrier through leverage (trades can be opened with just a few hundred dollars).

Forex is an over-the-counter (OTC) market with a global character — markets around the world are connected via computer networks, forming a continuous market that operates nearly 24 hours a day (with a brief pause before the Asia session opens). Each week, Wellington, New Zealand opens first, and trading for the week ends with the close in Chicago. Since trading happens over a global network, currency exchange doesn’t depend on any single venue — as long as one major market is open, currencies can be traded.

According to the Bank for International Settlements (BIS), average daily trading volume exceeds $6 trillion globally, making forex the world’s largest financial market — far exceeding the securities and bond markets, which contributes to its exceptional fairness and transparency.

Investors trade the price movement of a specific product without transacting the underlying asset. In theory, anything with a floating price can be traded — instruments available at Austex Markets include forex, indices, precious metals and commodities.

The difference between the buy and sell price of a product on the platform — one of the main trading costs. The wider the spread, the higher the cost.

The standard unit of transaction in the market. One standard lot equals 100,000 units of the base currency; a mini lot equals 10,000. The more lots you trade, the greater the potential risk and reward — choose a trade size appropriate to your account size and risk tolerance.

The unit of measurement for a change in exchange rate, usually 0.0001 (the fourth decimal place). For example, if AUDUSD rises from 0.7015 to 0.7019, that’s a 4-pip move.

P&L = lot size × contract size × pip movement, expressed in the quote currency (the second currency in the pair). For example, trading 1 standard lot of AUDUSD, each 1-pip (0.0001) move changes P&L by 100,000 × 0.0001 = 10 in the quote currency. This means a 50-pip move in a single day on 1 lot represents a risk of 500.

Establishing a new trading position.

Exiting an existing position.

If you expect the exchange rate to rise, you can go long (buy); if you expect it to fall, you can go short (sell). For example, if you believe EUR will weaken against USD, you can short EURUSD — selling EUR and buying USD.

Leverage lets investors gain greater market exposure, which magnifies both potential profits and risks. Since average daily price moves in major forex products have generally stayed under 1% in recent years, leveraged trading can significantly amplify returns on capital. Mainstream forex brokers typically offer default leverage between 100:1 and 500:1.

Margin is the capital locked in a trader’s account to maintain a position — it is not a trading fee. When a trade is opened, the corresponding margin is calculated based on the broker’s leverage ratio and serves as the minimum requirement to hold that position. For example, trading 1 lot of AUDUSD at 200:1 leverage requires margin of 100,000 ÷ 200 = 500.

The funds available in an account to absorb floating losses and risk, or to support additional positions. The higher the proportion of free margin, the safer the account. Free Margin = Equity − Used Margin + Floating P&L.

Margin trading requires sufficient capital to maintain a position. If an account’s balance is insufficient to maintain open positions, the broker will issue a margin call requesting additional funds; if funds aren’t added in time, positions may be closed.

The default leverage level is the same for every investor, but actual trading risk depends on actual trading leverage. Actual Trading Leverage = Trade Amount ÷ Account Capital.

The ratio of an investor’s actual invested capital to their account capital — in other words, the ratio between margin used and total account funds.

The base interest rates of the two currencies in a pair typically differ, creating a rate spread. Depending on the direction of the trade, investors may earn or pay interest daily. Buying a high-interest currency while selling a low-interest one can earn interest.

In a currency pair, the first currency is called the base currency and the second is the quote currency. For example, in EURUSD, EUR is the base currency and USD is the quote currency.

Direct pairs are quoted against USD, such as EURUSD, USDJPY, GBPUSD, AUDUSD, USDCAD, USDCHF and NZDUSD. Cross pairs don’t include USD, such as EURGBP, AUDJPY and AUDNZD.

Generally refers to opening a new position opposite an existing one when the market shows conflicting signals — also known as a lock order.

A price level set to prevent further losses. For a long position, the stop-loss price must be below the current sell price; for a short position, it must be above the current buy price.

A price level set to lock in profit when the market moves in your favour. For a long position, take-profit must be above the current sell price; for a short position, it must be below the current buy price.

An order to buy at a specified price or lower (or sell at a specified price or higher), letting the investor aim for a more favourable entry or exit price.

A situation where the actual execution price differs from the expected price, often due to market volatility or network delays.

Fundamental analysis examines supply and demand and other economic factors to identify trends; technical analysis studies historical price patterns and charts to forecast future market movement.