How FX trading works

A retail FX ticket is a price for exchanging one currency for another, plus a set of account rules that decide how much margin is required and how the result is counted. This guide walks through the quoting units. It does not say which pair, size or firm to use.

The broker directory records what firms publish about products and permissions. The platform directory records what the software vendors publish. Definitions of the words below are in the glossary.

A pair is a quoting convention

A currency pair names the two currencies in a price. The base currency is the one written first. The quote currency is the one in which one unit of the base is priced.

Which currency is written first is a convention of the publisher. The European Central Bank’s euro reference rates use the euro as the base, so each figure is a number of units of another currency per euro. The Basel Committee’s 2013 guidance describes an FX spot transaction as the purchase of one currency for another, with delivery usually two business days later. Neither document is a view on which currency will rise.

A major currency pair, in the FCA’s 2019 CFD instrument, is any two different currencies from this list: US dollar, euro, Japanese yen, pound sterling, Canadian dollar and Swiss franc. A minor pair is any other pair whose rate is traded in the FX market. The handbook uses those labels to set a minimum retail margin. It does not rank pairs.

Bid, ask and spread

A dealing quote has two prices. The bid is the price at which the quote will buy the base currency from you. The ask is the price at which it will sell the base currency to you. The spread is the gap between them.

MetaTrader 5’s Market Watch shows that gap in points, and it can mark the spread as floating. IG’s pip note says a currency-pair spread can be quoted in pips, and that IG itself calls the same move a point on CFD and spread-bet tickets. A spread is a cost of the quote you are looking at. It is not a fee schedule, and this site does not compare firms by it.

IG’s own counting example, which is an illustration and not a live price: if the bid is 1.1600 and the ask is 1.1602, the quote is two pips wide on the usual four-decimal convention for a pair such as EUR/USD.

Pips and pipettes

A pip is the usual unit for a change in a currency quote. IG describes it as one point in percentage. For most major pairs priced to four decimal places, IG says the pip is the fourth digit after the decimal point. For yen pairs quoted to two decimal places, IG says the pip is the second digit.

IG’s illustrations, again not live rates: a move in EUR/USD from 1.1600 to 1.1601 is one pip, and a move in USD/JPY from 120.01 to 120.02 is one pip.

A pipette is the extra decimal some platforms add beyond a pip. IG also calls it a fractional pip or a micro pip. Ten pipettes make one pip where the platform uses that extra digit. It is a display choice. It is not a regulator’s unit. MetaTrader 5 measures spread and stop distances in points, which may be finer than a pip. The symbol specification shows the price step.

A pip does not say how much money the move is worth until the position size is known.

Lots and contract size

A lot is a quantity of the asset. In MetaTrader 5, one lot is the symbol’s contract size: the number of units of the currency or other asset in one lot. Volume on an order is then a number of lots.

The retail-forex margin page in the MetaTrader 5 help uses a contract size of 100,000 in its worked example, and a volume of one lot. That figure is the example’s assumption. The contract size on a live symbol is whatever the broker’s specification says. Read that specification rather than assuming 100,000. On a demo account you can open the symbol’s specification without depositing.

Leverage and margin

Leverage is the ratio of exposure to the margin that has to be posted. Margin is the money required to open or keep a position. It is not a fee that is refunded, and it is not the most that can be lost.

For UK retail clients, COBS 22.5 states minimum initial margin as a percentage of exposure. As the handbook stood on 10 November 2026, that floor is at least 3.33% for a major FX pair or relevant sovereign debt, 5% for a minor FX pair, gold or a major index, 10% for another commodity or a minor index, 20% for a share or anything else on the list, and 50% for a cryptocurrency. The FCA’s policy statement PS19/18 describes the same retail cap as leverage of 30:1 to 2:1, depending on the underlying. Posting 3.33% is the 30:1 end of that description. The percentages are minimum margin, which is the same thing as a maximum leverage. They are not a suggested setting.

Margin has to be posted in money, not other assets, to open a restricted speculative investment under that section. Loss can still exceed the margin that was posted, except where negative balance protection applies. The protection limits a retail client’s liability on the covered products to the funds in the account. It does not stop the loss of those funds.

MetaTrader 5’s forex margin formula is volume in lots, multiplied by contract size, divided by leverage. Its worked example is one lot, a contract size of 100,000 and leverage of 1:100, which comes to 1,000 units of the base currency. That is the platform help’s arithmetic. A UK retail account cannot use 1:100 on a major pair, because the FCA floor is about 30:1. The 1:100 example is above that cap.

Account fields such as balance, equity and free margin are defined on MetaTrader 5’s executing-trades help, which the glossary pages cite. They are platform fields. The FCA’s close-out rule uses its own term, net equity. Do not assume the two numbers match without reading both definitions. Close-out, margin calls and stop-out are covered on their glossary pages.

Arithmetic on the published figures

The program below only multiplies figures already stated on this page. It runs as written under Python 3. It does not connect to a broker, it does not use a live price, and it is not an order. Decimal is used so that 0.0333 is the decimal written in the handbook’s percentage, not a binary approximation.

from decimal import Decimal

# COBS 22.5 major-pair floor, applied to the 30,000 exposure used with
# that rule on the glossary leverage page. 3.33% of 30,000 is 999.
exposure = Decimal("30000")
uk_retail_major_margin = exposure * Decimal("0.0333")
print(f"{uk_retail_major_margin:.1f}")

# MetaTrader 5 help example: one lot, contract size 100,000, leverage 1:100.
# This is the platform's example. It is above the UK retail major-pair cap.
contract_size = Decimal("100000")
mt5_help_margin = contract_size / Decimal("100")
print(f"{mt5_help_margin:.1f}")

# IG's pip step times the same 100,000-unit example. The result is in the
# quote currency. It is 10 US dollars only when the quote currency is USD.
four_decimal_pip = Decimal("0.0001") * contract_size
yen_pip = Decimal("0.01") * contract_size
print(f"{four_decimal_pip:.1f}")
print(f"{yen_pip:.1f}")

Run from a terminal, the four lines are 999.0, 1000.0, 10.0 and 1000.0.

Reading them in order: 999 units of account currency is 3.33% of 30,000. 1,000 units of the base currency is the MetaTrader 5 help’s 1:100 example, which a UK retail major-pair account is not allowed to use. 10 units of quote currency is one four-decimal pip on 100,000 units. 1,000 units of quote currency is one yen-style pip, where the pip is 0.01, on the same 100,000 units. If the quote currency is not the currency of the account, the platform still has to convert that result. This program does not do that conversion.

To see bid, ask, contract size and the leverage on a symbol, open the broker’s demo account and read the specification. Do not treat the numbers above as a ticket.

What this page does not decide

A pair, a pip, a lot and a spread describe a quote. Leverage describes how much margin the rule, and then the firm, require. None of them is a forecast, and none of them says that a firm’s prices are fair. Best execution is a separate conduct duty, and it is not a promise that every fill was the best price available anywhere.

Figures a firm has published for its own costs, with the source and the last-checked date, are lined up in the broker comparison. That page does not score or rank firms. It is not a view on which quote is cheaper to trade.

Product shape is a separate question. In the UK, the retail rules in COBS 22.5 cover leveraged CFDs, spread bets and rolling spot FX together. The legal and tax difference between a spread bet and a CFD is the subject of UK spread betting and CFDs. How a firm describes its execution model is covered in broker execution models.

This guide is for education and reference only. It is not financial, investment, tax, or trading advice, and it does not recommend a firm, product, or strategy. It does not provide signals, rankings, or profit claims. Contracts for difference, spread bets, and other leveraged products can lose money quickly. Worked figures are illustrations from the cited sources, or arithmetic on those figures. Where a guide asks you to look at a platform, use a demo account.