How does forex trading work?

When trading currencies, you speculate on the price. You open either a long (buy) or short (sell) position, assuming the currency’s value will either go up or down. As millions of other Forex traders open positions just like you, the price is set as a collective result of everyone’s positions.

Think of it as a ‘tug of war’ where millions of traders are holding a rope. One side is buying, the other is selling. When a trader opens a position, they grab one end of the rope. When happy with the current price, they close the position and thus ‘let go’ off the rope.

Without an official regulator or state involved, this is pretty much how the pricing is determined. But not everyone has the same amount of investment… Larger investments will definitely impact the direction and the pricing of markets slightly more than small investments. Still, the market is so deep that even the largest players can never shape or corner it.