What is forex?
Foreign exchange is the global market where one currency is exchanged for another. A forex quote always contains two currencies, such as EUR/USD. The first is the base currency and the second is the quote currency. If EUR/USD is 1.1000, one euro is valued at 1.10 US dollars.
Currency pairs
Major pairs include the US dollar and generally have the deepest liquidity. Minor pairs combine widely traded currencies without the US dollar, while exotic pairs combine a major currency with one from a smaller or emerging economy.
- Major: EUR/USD, GBP/USD, USD/JPY
- Minor: EUR/GBP, EUR/JPY, GBP/JPY
- Exotic: USD/TRY, USD/ZAR and similar pairs
Pips and spreads
A pip is a standard unit used to measure a currency pair’s price movement. For most pairs it is the fourth decimal place; for yen pairs it is usually the second. The spread is the difference between the broker’s buy and sell price and is one of the main trading costs.
Lots and position size
A standard lot normally represents 100,000 units of the base currency. Mini and micro lots represent smaller amounts. Position size determines how much money is gained or lost for each pip, so it should be calculated from your account size and planned stop-loss—not from the profit you hope to make.
- Standard lot: 100,000 units
- Mini lot: 10,000 units
- Micro lot: 1,000 units
Leverage and margin
Leverage lets you control a position larger than your cash balance, while margin is the amount reserved to support it. Leverage magnifies losses as well as gains. A small market move can therefore cause a large change in account equity or trigger a margin close-out.
Your first practice trade
Begin on a demo account. Choose one liquid pair, decide the entry, stop-loss and target before placing the order, and record the reason for the trade. Review whether you followed the plan rather than judging only the profit or loss.
Forex and CFD trading involves substantial risk. Practise with a demo account and never risk money you cannot afford to lose.