Note (September 2026): This guide was updated to add regulator data on retail losses and leverage limits, and to correct the claim that forex can be traded “anytime”: the spot market closes at weekends.
Forex trading is buying one currency while selling another to profit from exchange-rate changes; CFD trading is speculating on the price of a currency, stock, index or commodity through a contract, without owning the asset. Both usually use leverage, and regulators report that most retail CFD accounts lose money.
Key Takeaways
- The foreign exchange market averaged US$9.6 trillion in daily turnover in April 2025, according to the Bank for International Settlements (BIS) Triennial Survey.
- A CFD (contract for difference) settles the price change of an asset in cash; the trader never owns the underlying stock, currency or commodity.
- ESMA found in 2018 that 74% to 89% of retail CFD accounts typically lose money, with average losses of EUR 1,600 to EUR 29,000 per client.
- Retail leverage is capped: 30:1 on major currency pairs in the EU, UK and Australia, and 50:1 on major pairs for retail forex in the US, where CFDs are not permitted.
- Before opening an account, confirm the broker on the regulator’s own register; in India, the RBI Alert List named 95 unauthorised forex platforms as of November 2025.
If you’re new to trading, it’s understandable that the world of Forex trading can seem overwhelming. Forex and CFD (Contract for Difference) trading can be learned step by step, but both are high-risk, leveraged activities, and regulator data show that most retail traders who use CFDs lose money.
In this beginner’s guide, you can explore the basics of forex and CFD trading and some tips to help you get started.
What is Forex trading?
Forex trading, also known as foreign exchange trading, involves buying and selling currencies. The goal of Forex trading is to profit from the fluctuations in the exchange rate between two currencies.
For example, you believe the euro’s value will increase relative to the U.S. dollar. You would buy euros and sell dollars, hoping to profit from the increase in value.
What are CFDs?
CFDs are contracts between a buyer and a seller, where one party pays the other the difference between the asset’s value when the contract is opened and its value when the contract is closed; which side pays depends on the direction the price moved. Without owning the underlying asset, CFD trading allows you to trade on the price movements of various financial assets, including stocks, commodities, and currencies.
What are the benefits of Forex and CFD trading?
One of the main benefits of these types of trading is the ability to trade on margin. Margin trading lets a trader control a larger position with a smaller deposit, which magnifies both profits and losses by the same factor. Regulators cap retail leverage: ESMA’s limits start at 30:1 for major currency pairs and fall to 2:1 for cryptocurrencies.
Another feature of the forex market is that it runs 24 hours a day, five days a week, from about 22:00 UTC on Sunday (Sydney) to 22:00 UTC on Friday (New York). It is closed at weekends.
What are the risks of Forex and CFD trading?
As with any form of trading, there are risks involved with trading. One of the main risks is the potential for losses: according to the European Securities and Markets Authority (ESMA), 74% to 89% of retail CFD accounts typically lose money. Whether a trader can lose more than the initial deposit depends on the jurisdiction; in the EU and UK, retail CFD clients have negative balance protection, which caps losses at the funds in the account.
Another risk of Forex and CFD trading is the volatility of the markets. The value of currencies and assets can fluctuate rapidly, making it difficult to predict market movements. Having a firm grasp of the markets and a well-defined trading strategy to handle potential risks is crucial.
How to get started with Forex and CFD trading?
If you’re interested in Forex and CFD trading, the first step is to educate yourself. Read books, attend seminars, and practice on a demo trading account. Choosing a reputable broker with a good track record is also important. Look for a broker regulated by a recognized financial authority and with a good reputation in the industry. For example, you may check the review of Oanda FX broker to gain a more comprehensive understanding of how one of the top Forex brokerage platforms functions.
Once you’ve chosen a broker, you must open a trading account. Most brokers offer different account types, so choose the one that best suits your needs and budget. You’ll also need to deposit funds into your account before you can start trading.
Before you start trading with real money, it’s important to have a trading plan in place. Your trading plan should include your risk tolerance, strategy, and goals. You should also clearly understand the markets and the assets you plan to trade.
Final Thoughts
In conclusion, forex and CFD trading can be a lucrative way to make money for a minority of traders, but regulator data show that most retail CFD accounts lose money, so it is important to approach it cautiously and educate yourself before you start trading. Knowledge, a regulated broker and strict position sizing reduce avoidable mistakes, but they do not guarantee profits; only money that can be lost without hardship should be used for leveraged trading.
How Big Is the Forex Market?
The foreign exchange market is the largest financial market in the world by turnover. According to the BIS Triennial Central Bank Survey, trading averaged US$9.6 trillion per day in April 2025, up from US$7.5 trillion in 2022.
The US dollar was on one side of 89.2% of all transactions in April 2025. On the spot market, the most traded pairs were EUR/USD (21.2%), USD/JPY (14.3%) and USD/CNY (8.1%).
Trading is concentrated in a few financial centres. In April 2025 the United Kingdom accounted for 37.8% of global turnover, the United States 18.6%, Singapore 11.8%, Hong Kong 7.0% and Japan 3.5%.
Forex vs CFD Trading: What Is the Difference?
Forex trading and CFD trading overlap, because CFDs can also be written on currencies. The main differences are what is traded, whether the asset is owned, and where each product is allowed.
| Feature | Forex trading | CFD trading |
|---|---|---|
| What is traded | Currency pairs, such as EUR/USD | Price changes of stocks, indices, commodities, currencies and other assets |
| Ownership | Buying one currency and selling another | No ownership of the underlying asset |
| Market hours | 24 hours, Sunday 22:00 UTC to Friday 22:00 UTC | Varies by asset; check the broker’s trading schedule |
| Retail leverage cap (EU/UK) | 30:1 on major currency pairs | 30:1 down to 2:1, depending on the asset |
| United States | Allowed; leverage capped at 50:1 on major pairs and 20:1 on others | Not permitted for listing on regulated US exchanges |
Key Forex and CFD Terms Every Beginner Should Know
- Currency pair: the two currencies in a forex trade, for example EUR/USD. Buying EUR/USD means buying euros and selling US dollars.
- Pip: the smallest whole unit price move in an exchange rate by market convention. For most pairs a pip is 0.0001 (the fourth decimal place); for Japanese yen pairs it is 0.01. Many platforms also quote fractional pips (one-tenth of a pip).
- Lot: a standard lot is 100,000 units of the base currency.
- Spread: the gap between the bid (sell) price and the ask (buy) price, which is a built-in cost of every trade.
- Leverage and margin: leverage of 30:1 means a deposit (margin) of one unit controls a position worth 30 units.
- Margin close-out: in the EU and UK, a broker must close a retail client’s positions when the account’s funds fall to 50% of the margin needed to keep them open.
- Overnight financing: a leveraged CFD position held overnight is charged a financing cost, which reflects borrowing money for the whole position.
How Much Is One Pip Worth? A Worked Example
For EUR/USD, one pip is 0.0001. On a standard lot of 100,000 euros, a one-pip move changes the position’s value by 100,000 x 0.0001 = US$10. A 50-pip move against the trader therefore costs US$500.
At the 30:1 maximum leverage for major pairs, the margin needed to open that 100,000-euro position is about 3,333 euros (100,000 / 30). A 1% move in EUR/USD changes the position’s value by 1% of 100,000 euros, which equals 30% of the margin, so small price moves become large percentage gains or losses.
Leverage Limits and Rules by Country
Retail forex and CFD rules differ sharply by jurisdiction. The table below summarises the main regulators’ rules for retail clients, as of September 2026.
| Jurisdiction | Regulator | Key retail rules |
|---|---|---|
| European Union | ESMA and national regulators | Leverage caps agreed in March 2018: 30:1 major currency pairs; 20:1 non-major pairs, gold and major indices; 10:1 other commodities and non-major indices; 5:1 individual shares; 2:1 cryptocurrencies. 50% margin close-out, negative balance protection, standard risk warning. |
| United Kingdom | Financial Conduct Authority (FCA) | Permanent rules from 1 August 2019: leverage between 30:1 and 2:1, 50% margin close-out, negative balance protection, and a risk warning stating the percentage of the firm’s retail accounts that lose money. |
| Australia | ASIC | Maximum retail CFD leverage reduced to 30:1 from March 2021. |
| United States | CFTC and NFA | Retail forex leverage capped at 50:1 on major currency pairs and 20:1 on all others; CFDs are not permitted on regulated US exchanges. |
| India | Reserve Bank of India (RBI) | Residents may deal in forex only with authorised persons, for permitted purposes, on RBI-authorised electronic trading platforms or recognised stock exchanges; trading through unauthorised platforms can attract penal action under FEMA, 1999. |
The basic rules of forex trading a beginner follows should therefore start with one question: is this product legal for a retail client where I live?
How Many Retail Traders Lose Money?
Regulator data consistently show that most retail CFD traders lose money. ESMA’s 2018 review of EU jurisdictions found that 74% to 89% of retail accounts typically lost money, with average losses per client between EUR 1,600 and EUR 29,000.
A 2016 analysis by the UK Financial Conduct Authority found that 82% of sampled CFD clients lost money, with an average loss of about GBP 2,200. Because EU and UK brokers must now publish the percentage of their own retail accounts that lose money, that figure is one of the most useful numbers to read before opening an account.
How to Check Whether a Forex or CFD Broker Is Legitimate
- Search the regulator’s own register. Use the regulator’s public records, for example the CFTC’s registration and disciplinary-history check in the US or the RBI’s list of authorised persons and authorised ETPs in India. A logo on the broker’s website is not proof.
- Check warning and alert lists. The RBI Alert List of unauthorised forex platforms had 95 names after its 19 November 2025 update, and the RBI says an entity missing from the list should not be assumed to be authorised.
- Read the risk warning. EU and UK brokers must state what share of their retail accounts lose money.
- Confirm the client protections. Ask whether the account has negative balance protection and a margin close-out rule.
- Look for fraud red flags. The CFTC warns about promises that forex has no “bear” market, claims that retail clients can trade in the interbank market, pressure to send money quickly, and difficulty getting background information on the firm.
- Check the disciplinary history. Even large, regulated brokers can have past penalties; OANDA, for example, was ordered by the NFA in May 2025 to pay a US$600,000 fine, and it was acquired by the Czech trading company FTMO in a deal completed on 1 December 2025.
More detail on licensing and investor protection is in this guide to regulated brokers and their benefits, and introducing brokers are explained in what an IB broker is in forex trading.
A Step-by-Step Plan for Getting Started
- Learn the terms above and practise on a demo account until position sizing and stop-loss orders are routine.
- Confirm that forex or CFD trading is legal for retail clients in your country and choose a broker listed on the regulator’s register.
- Write a trading plan that sets the maximum amount risked per trade and per month; this guide to risk management in an FX trading plan covers the basics.
- Start with small positions and low leverage, and calculate the pip value and margin before every trade.
- Keep a trading journal and review losing trades; the common obstacles newcomers face in the forex market are a useful checklist.
This article is general information, not personal financial advice. Tax treatment and product availability vary by country.
Frequently Asked Questions
What is the difference between forex and CFD trading?
Forex trading is the buying and selling of currency pairs, while CFD trading is speculating on the price of many assets, including currencies, stocks, indices and commodities, through a contract settled in cash. A CFD trader never owns the underlying asset.
Can you lose more than you deposit in CFD trading?
In the EU and UK, retail CFD clients cannot lose more than the funds in their CFD account, because brokers must provide negative balance protection. In other jurisdictions the protection may not apply, so traders should check their broker’s terms.
Is CFD trading legal in the United States?
CFDs are not permitted on regulated US exchanges, so US retail traders generally cannot trade them. Retail forex is allowed in the US under CFTC rules, with leverage capped at 50:1 on major currency pairs and 20:1 on others.
Is forex trading legal in India?
Indian residents may undertake forex transactions only with authorised persons, for permitted purposes, on RBI-authorised electronic trading platforms or recognised stock exchanges. Trading through unauthorised online platforms can attract penal action under FEMA, 1999.
What percentage of CFD traders lose money?
ESMA’s 2018 analysis found that 74% to 89% of retail CFD accounts typically lose money. Each EU and UK broker must publish its own current figure in its risk warning.
When is the forex market open?
The forex market trades 24 hours a day from about 22:00 UTC on Sunday, when Sydney opens, until 22:00 UTC on Friday, when New York closes. It is closed at weekends.
