Forex trading is often marketed as fast, flexible and accessible. While it is true that the foreign exchange market is the largest and most liquid market in the world, many beginners misunderstand how it actually works. This lack of understanding is one of the main reasons new traders struggle early on.
We will explain how forex trading really works, covering currency pairs, pips, leverage and market sessions, while highlighting common beginner mistakes and why education and risk management matter more than relying on indicators alone.
What Is Forex Trading?
Forex trading, also known as foreign exchange trading, involves exchanging one currency for another with the aim of profiting from changes in exchange rates. Currencies are always traded in pairs because you are simultaneously buying one currency while selling another.
For example, when trading EUR/USD, you are buying euros and selling US dollars, or vice versa. If the euro strengthens against the dollar, the price rises. If it weakens, the price falls.
Understanding Currency Pairs
Each forex pair consists of two currencies:
- The base currency, which is the first currency listed
- The quote currency, which is the second currency listed
The price of a currency pair shows how much of the quote currency is needed to buy one unit of the base currency.
Currency pairs are commonly grouped into:
- Major pairs, which include the most traded currencies such as EUR/USD and GBP/USD
- Minor pairs, which do not include the US dollar
- Exotic pairs, which involve emerging market currencies and tend to be more volatile
For beginners, major pairs are often considered more suitable due to their higher liquidity and tighter spreads.
What Are Pips?
A pip (percentage in point) is the standard unit used to measure price movement in forex trading. In most currency pairs, a pip represents the fourth decimal place. For example, if EUR/USD moves from 1.1000 to 1.1001, that is a one-pip movement.
Pips are important because they determine profit and loss. The value of a pip depends on the size of the trade and the currency pair being traded. Understanding how pips work is essential before risking real money.
Leverage: A Double-Edged Sword
Leverage allows traders to control larger positions with a smaller amount of capital. While this can increase potential profits, it also significantly increases risk.
Many beginners focus on leverage as a way to grow accounts quickly, without fully understanding that losses are magnified in exactly the same way. This is one of the most common reasons new traders lose money early on.
Used carefully and alongside strict risk management, leverage can be a useful tool. However, if used recklessly, it can quickly wipe out an account.
Forex Market Sessions
The forex market operates 24 hours a day during the trading week, but it is divided into four primary sessions:
- The Tokyo session
- The London session
- The New York session
- The Sydney session
Market activity and volatility vary depending on the session. For example, the London and New York overlap is often the most active period, while other sessions may be quieter. Understanding when markets are most liquid helps traders avoid unpredictable conditions.
Why Most Beginners Get Forex Trading Wrong
Many beginners approach forex trading with unrealistic expectations. Common mistakes include relying too heavily on indicators, overtrading, risking too much on a single trade and ignoring proper risk management.
Indicators can be useful, but they are not a replacement for understanding market structure, price behaviour and risk control. No indicator can remove uncertainty from the markets.
Education plays a far more important role than finding a “perfect” strategy. Learning how markets move, how to manage risk and how to stay disciplined often matters more than technical tools alone.
Why Education and Risk Management Matter
Successful trading is less about prediction and more about preparation. Risk management helps traders stay in the game long enough to learn and improve, while education builds the foundation needed to make informed decisions.
At Samuel and Co Trading, the emphasis is on understanding how forex markets truly operate, developing realistic expectations and focusing on long-term skill development rather than short-term shortcuts.
Conclusion
Forex trading is not easy, but it is learnable. Understanding currency pairs, pips, leverage and market sessions is essential for anyone starting out. By avoiding common beginner mistakes and prioritising education and risk management over indicators, traders put themselves in a far stronger position to navigate the markets responsibly.
