Forex trading: A beginner's guide

By Nick K. Lioudis | Updated August 4, 2018 — 10:26 AM EDT

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Forex is short for foreign exchange, but the actual asset class we are referring to is currencies. Foreign
exchange is the act of changing one country's currency into another country's currency for a variety of
reasons, usually for tourism or commerce. Due to the fact that business is global, there is a need to
transact with other countries in their own particular currency.

After the accord at Bretton Woods in 1971, when currencies were allowed to float freely against one
another, the values of individual currencies have varied, which has given rise to the need for foreign
exchange services. This service has been taken up by commercial and investment banks on behalf of
their clients, but it has simultaneously provided a speculative environment for trading one currency
against another using the internet.

Forex as a Hedge
Commercial enterprises doing business in foreign countries are at risk due to fluctuations in the
currency value when they have to buy or sell goods or services to another country. Hence, the foreign
exchange markets provide a way to hedge the risk by fixing a rate at which the transaction will be
concluded at some time in the future.

To accomplish this, a trader can buy or sell currencies in the forward or swap markets, at which time
the bank will lock in a rate so that the trader knows the exact exchange rate in order to mitigate his or
her company's risk. To some extent, the futures market can also offer a means to hedge currency risk,
depending on the size of the trade and the actual currency involved. The futures market is conducted in
a centralized exchange and is less liquid than the forward markets, which are decentralized and exist
within the interbank system throughout the world.

Forex as Speculation
Since there is constant fluctuation between the currency values of countries due to varying supply and
demand factors such as interest rates, trade flows, tourism, economic strength and geopolitical risk, an
opportunity exists to bet against these changing values by buying or selling one currency against
another in the hopes that the currency you buy will gain in strength or that the currency you sell will
weaken against its counterpart. (For additional reading, see "Top 6 Questions About Currency
Trading.")

Currency as an Asset Class

There are two distinct features to currency as an asset class:

 You can earn the interest rate differential between two currencies.
 You can gain value in the exchange rate.

Why We Can Trade Currencies

Until the advent of the internet, currency trading was limited to interbank activity on behalf of their
clients. Gradually, the banks themselves set up proprietary desks to trade for their own accounts, which
was followed by large multinational corporations, hedge funds and high net worth individuals.
With help from the internet, a retail market aimed at individual traders has emerged, providing easy
access to the foreign exchange markets, either through the banks themselves or brokers making a
secondary market. (For more on the basics of forex, check out "8 Basic Forex Market Concepts.")

Forex Trading Risks

Trading currencies can cause some confusion related to risk due to its complexities. Much has been
said about the interbank market being unregulated and therefore very risky due to a lack of oversight.
This perception is not entirely true, though. A better approach to the discussion of risk would be to
understand the differences between a decentralized market versus a centralized market and then
determine where regulation would be appropriate.

The interbank market is made up of several banks trading with each other around the world. The banks
themselves have to determine and accept sovereign risk and credit risk, and for this they have many
internal auditing processes to keep them as safe as possible. The regulations are industry- imposed for
the sake and protection of each participating bank.

Since the market is made by each of the participating banks providing offers and bids for a particular
currency, the market pricing mechanism is derived from supply and demand. Due to the huge flows
within the system, it is almost impossible for any one rogue trader to influence the price of a currency.
In today's high-volume market, with between $2 trillion and $3 trillion being traded per day, even the
central banks cannot move the market for any length of time without the full coordination and
cooperation of other central banks. (For more on the interbank system, read "The Foreign Exchange
Interbank Market.")

Attempts are being made to create an Electronic Communication Network (ECN) to bring buyers and
sellers into a centralized exchange so that pricing can be more transparent. This is a positive move for
retail traders who will gain a benefit by seeing more competitive pricing and centralized liquidity.
Banks of course do not have this issue and can, therefore, remain decentralized.

Traders with direct access to the forex banks are also less exposed than those retail traders who deal
with relatively small and unregulated forex brokers, which can (and sometimes do) re-quote prices and
even trade against their own customers. It seems that the discussion of regulation has arisen because of
the need to protect the unsophisticated retail trader who has been led to believe that forex trading is a
surefire profit-making scheme. (See also "Why It's Important to Regulate Foreign Exchange.")

For the serious and educated retail trader, there is now the opportunity to open accounts at many of the
major banks or the larger, more liquid brokers. As with any financial investment, it pays to remember
the caveat emptor rule – "buyer beware!" (For more on the ECN and other exchanges, check out
"Getting to Know the Stock Exchanges.")

Pros and Potential Cons of Trading Forex

If you intend to trade currencies, in addition to the previous comments regarding broker risk, the pros
and potential cons of trading forex are laid out as follows:

Pro: The forex markets are the largest in terms of volume traded in the world and therefore offer the
most liquidity, thus making it easy to enter and exit a position in any of the major currencies within a
fraction of a second.

Potential Con: As a result of the liquidity and ease that a trader can enter or exit a trade, banks and/or
brokers offer leverage, which means that a trader can control quite large positions with relatively little
money of their own. Leverage in the range of 100:1 is a high ratio, but not uncommon. Of course, a
trader must understand the use of leverage and the risks that leverage can impose on an account.
Leverage has to be used judiciously and cautiously if it is to provide any benefits. A lack of
understanding or wisdom in this regard can easily wipe out a trader's account. (For more on leverage,
check out "Forex Leverage: A Double-Edged Sword.")

Pro: Another advantage of the forex markets is the fact that they trade 24 hours around the clock,
starting each day in Australia and ending in New York. The major centers are Sydney, Hong Kong,
Singapore, Tokyo, Frankfurt, Paris, London and New York.

Potential Con: Trading currencies is a "macroeconomic" endeavor. A currency trader needs to have a
big-picture understanding of the economies of the various countries and their inter-connectedness in
order to grasp the fundamentals that drive currency values. For some, it is easier to focus on economic
activity to make trading decisions than to understand the nuances and often closed environments that
exist in the stock and futures markets where microeconomic activities need to be understood. However,
an understanding of a company's management skills, financial strengths, market opportunities and
industry-specific knowledge are not necessary in forex trading. (Take a look at "Economic Factors That
Affect the Forex Market" to learn more.)

[Note: One of the underlying tenets of technical analysis is that historical price action predicts future
price action. Since the forex market is a 24-hour market, there tends to be a large amount of data that
can be used to gauge future price movements. This makes it the perfect market for traders that use
technical tools. If you want to learn more about technical analysis from one of the world's most widely
followed technical analysts, check out Investopedia Academy's Technical Analysis course.]

Two Ways to Approach Forex Trading

For most investors or traders with stock market experience, there has to be a shift in attitude to
transition into or add currencies as a further opportunity for diversification.

1. Currency trading has been promoted as an "active trader's" opportunity. This type of opportunity
suits brokers because it means they earn more due to the nimbleness that accompanies active trading.

2. Currency trading is also promoted as leveraged trading, and therefore, it is easier for a trader to open
an account with a small amount of money than is necessary for trading in the stock market.

Besides trading for a profit or yield, currency trading can be used to hedge a stock portfolio. For
example, if someone builds a stock portfolio in a country where there is potential for the stock to
increase in value, but there is downside risk in terms of the currency (i.e., the U.S. in recent history), a
trader could own the stock portfolio and short the dollar against another currency such as the Swiss
franc or euro. In this way, the portfolio value will increase, and the negative effect of the declining
dollar will be offset. This is true for those investors outside the U.S. who will eventually repatriate
profits back to their own currencies. (For a better understanding of risk, read "Understanding Forex
Risk Management.") Opening a forex account and day trading or swing trading is most common with
this profile in mind.

A second approach to trading currencies is to understand the fundamentals and the long-term benefits.
It is beneficial to a trader when a currency is trending in a specific direction and offering a positive
interest differential that provides a return on the investment plus an appreciation in currency value.
This type of trade is known as a "carry trade." For example, a trader can buy the Australian dollar
against the Japanese yen. If the Japanese interest rate is .05% and the Australian interest rate is 4.75%,
a trader can earn 4%. (For more, read "The Fundamentals of Forex Fundamentals.")

However, if the Australian dollar is strengthening against the yen, it is appropriate to buy the AUD/JPY
and to hold it in order to gain in both the currency appreciation and the interest yield.
The Bottom Line
For traders – especially those with limited funds – day trading or swing trading in small amounts can
be a good way to play the forex markets. For those with longer-term horizons and larger fund pools, a
carry trade may be an appropriate alternative.

In both cases, traders must know how to map out the timing their trades through charts, since good
timing is the essence of profitable trading. In both cases, as in all other trading activities, the trader
must know their own personality traits well enough so that they do not violate good trading habits with
bad and impulsive behavior patterns. (To determine what type of trading is best for you, see "What
Type of Forex Trader Are You?")

Read more: Forex Trading: The Ultimate Beginner's Guide | Investopedia

https://www.investopedia.com/articles/forex/11/why-trade-forex.asp#ixzz5RBjRMTjO
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Basic Stock Market Terms Explained in Simple Terms
By Shailesh Kumar

Stock market trading goes back about 200 years. In the

US, the colonial government used to sell bonds in order to finance the war. The government promised to pay the
buyers of bonds at a later date. It was during this time that private banks started issuing stocks of companies to
raise money. This was also a time when the rich had tremendous opportunities to scale up their wealth.

In 1792, twenty four big merchants joined hands to create the New York Stock Exchange (NYSE). The daily
meeting in Wall Street for trading bonds and stocks was also initiated during this time. In the early half of the
19th century, the US witnessed rapid economic growth. The companies understood that investors were eager to
have partial ownership so they offered stocks. By the turn of the 20th century, stocks worth millions of dollars
were traded and the stock markets began to grow globally. Today the stock exchanges such as NYSE, London
Stock Exchange, and the Tokyo Stock Exchange have a major impact on global economy and commerce.

History has shown that the issuing of stocks helped companies to expand exponentially. The economy where
the stock market is on the rise can be considered an upcoming economy. Rising share prices tend to be
associated with the increased business investments. Share prices also actively influence the wealth of
households and their consumption. Exchanges act as the clearinghouse for every transaction which means that
they collect and deliver the shares, guaranteeing payment to the sellers.

 NYSE: A history of the New York Stock Exchange.

 SEC: The official website of the US Securities and Exchange Commission.
 NASDAQ: The largest electronic-based stock exchange in the United States.
 CBOE: The largest options exchange in the world.

Here’s a glossary of stock market terms, suitable for beginners just learning how to pick stocks.

After-hours Deal: The stock market usually closes at 4:00pm. After this scheduled time, deals can also be made
but the transaction is dated the next day, known as an after-hours deal.

Annual Report: An audit report to shareholders produced yearly. This report of stock market news is produced
by all publicly quoted companies.

Balance Sheet: The financial statement which shows the liabilities and assets of a company.

Bargain: Regarding sale or purchase in the stock market, bargain is a common word.

Bearer Stocks: This is the stock that is unregistered with the owner’s name.

Bed and Breakfast Deal: This refers to the sale of share and repurchase on another day. It’s done to set up profit
or loss for the purpose of tax.
Bid Price: This term indicates the sale price of stocks or shares.

Blue Chip: These are shares of big and reputed companies.

Book Value: The net worth of the company as listed on the balance sheet.

Bull: A person who considers the share price of the stock exchange to be on the rise.

Call: An extra installment due on shares.

Capital: The amount of money used for setting up a new business.

Cash Settlement: In the stock exchange, there are certain deals like Gilts which are rendered for cash and not for
account settlement. They are settled the next day of the deal.

Contract Note: This is a printed confirmation letter from any broker indicating a bargain which is carried out.

Coupon: Refers to interest amount payable only for fixed interest stock.

Cum Dividend: These are shares that are sold, allowing the buyer to receive the following dividend.

Dawn Raid: Refers to the buying of a huge amount of shares in the morning at the opening of stock market.

Dealing: This means the purchase and sale of shares.

Debenture: The stock that a company issues which are backed by assets.

Depreciation: The amount of money set aside for replacement of the assets.

Dividend: The part of the company’s profits which is usually distributed to company’s shareholders, normally
on regular basis.

Equities: These are the ordinary shares. They are different from debenture and also from loan stock.

Ex-dividend: The share which is bought without any right for receiving the next dividend. This is usually
retained by sellers.

Final Dividend: This is the dividend which is declared according to the company’s annual results.

Financial Ratio: Various ratios that indicate the health of a business and value in the stock.

Futures: Contracts that allow any holder the legal right to buy or sell Indexes and Commodities in the future at a
price set today.

Gross: The interest paid without deducting of tax.

Hedge: This means to insure the risk.

Initial Public Offering: The issue of new shares by a previously private company as it becomes a public
company.

Limit Order: This is an order to any stockbroker specifying any fixed price limit.

Liquidation: Converting the prevailing assets to cash.

Loan Stock: The stock that bears a fixed interest rate. It’s different from debenture stock because it’s not
required to be secured by any asset.
Options: The term means the right to purchase (call option) and sell (put option) a particular share at a particular
price within a particular period.

Ordinary Share: This is a share where the dividends usually vary in the amount.

Over the Counter Market (OTC): Refers to a marketplace outside the main stock market.

Portfolio: A selection of shares usually held by a person or fund. Also known as investment portfolio or a stock
portfolio

Proxy: Anybody who votes on another person’s behalf if the person is unable to attend a shareholders’ meeting.

Stock: Also referred to share or equity, stock is the basic ownership unit of a company.

Stock Warrants: An instrument that conveys the right to buy additional stock within a fixed time period at a set
price. Warrants differ from stock options in the way they are exercised.

Value Stocks: Stocks that appear to be trading at a discount to their intrinsic worth, as measured by various
different valuation metrics.

Yearlings: Bonds issued for twelve-month term, mainly by local authorities.

Yield: The gross dividend presented as the percentage of the share price.
Part 1: What Is Forex Trading ? – A Definition &
Introduction
An Introduction to FOREX Trading:

Hey traders,

This free Forex mini-course is designed to teach you the basics of the Forex market and Forex trading in a non-
boring way. I know you can find this information elsewhere on the web, but let’s face it; most of it is scattered
and pretty dry to read. I will try to make this tutorial as fun as possible so that you can learn about Forex trading
and have a good time doing it.

Upon completion of this course you will have a solid understanding of the Forex market and Forex trading, and
you will then be ready to progress to learning real-world Forex trading strategies.

What is the Forex market?

• What is Forex? – The basics…

Basically, the Forex market is where banks, businesses, governments, investors and traders come to exchange
and speculate on currencies. The Forex market is also referred to as the ‘Fx market’, ‘Currency market’,
‘Foreign exchange currency market’ or ‘Foreign currency market’, and it is the largest and most liquid market
in the world with an average daily turnover of $3.98 trillion.

The Fx market is open 24 hours a day, 5 days a week with the most important world trading centers being
located in London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris, and Sydney.

It should be noted that there is no central marketplace for the Forex market; trading is instead said to be
conducted ‘over the counter’; it’s not like stocks where there is a central marketplace with all orders processed
like the NYSE. Forex is a product quoted by all the major banks, and not all banks will have the exact same
price. Now, the broker platforms take all theses feeds from the different banks and the quotes we see from our
broker are an approximate average of them. It’s the broker who is effectively transacting the trade and taking
the other side of it…they ‘make the market’ for you. When you buy a currency pair…your broker is selling it to
you, not ‘another trader’.
• A brief history of the Forex market

Ok, I admit, this part is going to be a little bit boring, but it’s
important to have some basic background knowledge of the history of the Forex market so that you know a little
bit about why it exists and how it got here. So here is the history of the Forex market in a nutshell:

In 1876, something called the gold exchange standard was implemented. Basically it said that all paper currency
had to be backed by solid gold; the idea here was to stabilize world currencies by pegging them to the price of
gold. It was a good idea in theory, but in reality it created boom-bust patterns which ultimately led to the demise
of the gold standard.

The gold standard was dropped around the beginning of World War 2 as major European countries did not have
enough gold to support all the currency they were printing to pay for large military projects. Although the gold
standard was ultimately dropped, the precious metal never lost its spot as the ultimate form of monetary value.

The world then decided to have fixed exchange rates that resulted in the U.S. dollar being the primary reserve
currency and that it would be the only currency backed by gold, this is known as the ‘Bretton Woods System’
and it happened in 1944 (I know you super excited to know that). In 1971 the U.S. declared that it would no
longer exchange gold for U.S. dollars that were held in foreign reserves, this marked the end of the Bretton
Woods System.

It was this break down of the Bretton Woods System that ultimately led to the mostly global acceptance of
floating foreign exchange rates in 1976. This was effectively the “birth” of the current foreign currency
exchange market, although it did not become widely electronically traded until about the mid 1990s.

(OK! Now let’s move on to some more entertaining topics!)…

What is Forex Trading?

Forex trading as it relates to retail traders (like you and I) is the

speculation on the price of one currency against another. For example, if you think the euro is going to rise
against the U.S. dollar, you can buy the EURUSD currency pair low and then (hopefully) sell it at a higher price
to make a profit. Of course, if you buy the euro against the dollar (EURUSD), and the U.S. dollar strengthens,
you will then be in a losing position. So, it’s important to be aware of the risk involved in trading Forex, and not
only the reward.

• Why is the Forex market so popular?

Being a Forex trader offers the most amazing potential lifestyle of any profession in the world. It’s not easy to
get there, but if you are determined and disciplined, you can make it happen. Here’s a quick list of skills you
will need to reach your goals in the Forex market:

Ability – to take a loss without becoming emotional

Confidence – to believe in yourself and your trading strategy, and to have no fear

Dedication – to becoming the best Forex trader you can be

Discipline – to remain calm and unemotional in a realm of constant temptation (the market)

Flexibility – to trade changing market conditions successfully

Focus – to stay concentrated on your trading plan and to not stray off course

Logic – to look at the market from an objective and straight forward perspective

Organization – to forge and reinforce positive trading habits

Patience – to wait for only the highest-probability trading strategies according to your plan

Realism – to not think you are going to get rich quick and understand the reality of the market and trading

Savvy – to take advantage of your trading edge when it arises and be aware of what is happening in the market
at all times

Self-control – to not over-trade and over-leverage your trading account

As traders, we can take advantage of the high leverage and volatility of the Forex market by learning and
mastering and effective Forex trading strategy, building an effective trading plan around that strategy, and
following it with ice-cold discipline. Money management is key here; leverage is a double-edged sword and can
make you a lot of money fast or lose you a lot of money fast. The key to money management in Forex trading is
to always know the exact dollar amount you have at risk before entering a trade and be TOTALLY OK with
losing that amount of money, because any one trade could be a loser. More on money management later in the
course.
• Who trades Forex and why?

Banks – The interbank market allows for both

the majority of commercial Forex transactions and large amounts of speculative trading each day. Some large
banks will trade billions of dollars, daily. Sometimes this trading is done on behalf of customers, however much
is done by proprietary traders who are trading for the bank’s own account.

Companies – Companies need to use the foreign exchange market to pay for goods and services from foreign
countries and also to sell goods or services in foreign countries. An important part of the daily Forex market
activity comes from companies looking to exchange currency in order to transact in other countries.

Governments / Central banks – A country’s central bank can play an important role in the foreign exchange
markets. They can cause an increase or decrease in the value of their nation’s currency by trying to control
money supply, inflation, and (or) interest rates. They can use their substantial foreign exchange reserves to try
and stabilize the market.

Hedge funds – Somewhere around 70 to 90% of all foreign exchange transactions are speculative in nature.
This means, the person or institutions that bought or sold the currency has no plan of actually taking delivery of
the currency; instead, the transaction was executed with sole intention of speculating on the price movement of
that particular currency. Retail speculators (you and I) are small cheese compared to the big hedge funds that
control and speculate with billions of dollars of equity each day in the currency markets.

Individuals – If you have ever traveled to a different country and exchanged your money into a different
currency at the airport or bank, you have already participated in the foreign currency exchange market.

Investors – Investment firms who manage large portfolios for their clients use the Fx market to facilitate
transactions in foreign securities. For example, an investment manager controlling an international equity
portfolio needs to use the Forex market to purchase and sell several currency pairs in order to pay for foreign
securities they want to purchase.

Retail Forex traders – Finally, we come to retail Forex traders (you and I). The retail Forex trading industry is
growing everyday with the advent of Forex trading platforms and their ease of accessibility on the internet.
Retail Forex traders access the market indirectly either through a broker or a bank. There are two main types of
retail Forex brokers that provide us with the ability to speculate on the currency market: brokers and dealers.
Brokers work as an agent for the trader by trying to find the best price in the market and executing on behalf of
the customer. For this, they charge a commission on top of the price obtained in the market. Dealers are also
called market makers because they ‘make the market’ for the trader and act as the counter-party to their
transactions, they quote a price they are willing to deal at and are compensated through the spread, which is the
difference between the buy and sell price (more on this later).
 Advantages of Trading the Forex Market:

• Forex is the largest market in the world, with daily volumes exceeding $3 trillion per day. This means dense
liquidity which makes it easy to get in and out of positions.

• Trade whenever you want: There is no opening bell in the Forex market. You can enter or exit a trade
whenever you want from Sunday around 5pm EST to Friday around 4pm EST.

• Ease of access: You can fund your trading account with as little as $250 at many retail brokers and begin
trading the same day in some cases. Straight through order execution allows you to trade at the click of a mouse.

• Fewer currency pairs to focus on, instead of getting lost trying to analyze thousands of stocks

• Freedom to trade anywhere in the world with the only requirements being a laptop and internet connection.

• Commission-free trading with many retail market-makers and overall lower transaction costs than stocks and
commodities.

• Volatility allows traders to profit in any market condition and provides for high-probability weekly trading
opportunities. Also, there is no structural market bias like the long bias of the stock market, so traders have
equal opportunity to profit in rising or falling markets.

While the forex market is clearly a great market to trade, I would note to all beginners that trading carries both
the potential for reward and risk. Many people come into the markets thinking only about the reward and
ignoring the risks involved, this is the fastest way to lose all of your trading account money. If you want to get
started trading the Fx market on the right track, it’s critical that you are aware of and accept the fact that you
could lose on any given trade you take.
Part 2: Forex Trading Terminology
Forex Trading Terminology

The Forex market comes with its very own set of terms and
jargon. So, before you go any deeper into learning how to trade the Fx market, it’s important you understand
some of the basic Forex terminology that you will encounter on your trading journey…

• Basic Forex terms:

Cross rate – The currency exchange rate between two currencies, both of which are not the official currencies
of the country in which the exchange rate quote is given in. This phrase is also sometimes used to refer to
currency quotes which do not involve the U.S. dollar, regardless of which country the quote is provided in.

For example, if an exchange rate between the British pound and the Japanese yen was quoted in an American
newspaper, this would be considered a cross rate in this context, because neither the pound or the yen is the
standard currency of the U.S. However, if the exchange rate between the pound and the U.S. dollar were quoted
in that same newspaper, it would not be considered a cross rate because the quote involves the U.S. official
currency.

Exchange Rate – The value of one currency expressed in terms of another. For example, if EUR/USD is
1.3200, 1 Euro is worth US$1.3200.

Pip – The smallest increment of price movement a currency can make. Also called point or points. For example,
1 pip for the EUR/USD = 0.0001 and 1 pip for the USD/JPY = 0.01.

Leverage – Leverage is the ability to gear your account into a position greater than your total account margin.
For instance, if a trader has $1,000 of margin in his account and he opens a $100,000 position, he leverages his

acc ount by 100 times, or 100:1. If he opens a $200,000 position with

$1,000 of margin in his account, his leverage is 200 times, or 200:1. Increasing your leverage magnifies both
gains and losses.

To calculate the leverage used, divide the total value of your open positions by the total margin balance in your
account. For example, if you have $10,000 of margin in your account and you open one standard lot of
USD/JPY (100,000 units of the base currency) for $100,000, your leverage ratio is 10:1 ($100,000 / $10,000). If
you open one standard lot of EUR/USD for $150,000 (100,000 x EURUSD 1.5000) your leverage ratio is 15:1
($150,000 / $10,000).

Margin – The deposit required to open or maintain a position. Margin can be either “free” or “used”. Used
margin is that amount which is being used to maintain an open position, whereas free margin is the amount
available to open new positions. With a $1,000 margin balance in your account and a 1% margin requirement to
open a position, you can buy or sell a position worth up to a notional $100,000. This allows a trader to leverage
his account by up to 100 times or a leverage ratio of 100:1.

If a trader’s account falls below the minimum amount required to maintain an open position, he will receive a
“margin call” requiring him to either add more money into his or her account or to close the open position. Most
brokers will automatically close a trade when the margin balance falls below the amount required to keep it
open. The amount required to maintain an open position is dependent on the broker and could be 50% of the
original margin required to open the trade.

Spread – The difference between the sell quote and the buy quote or the bid and offer price. For example, if
EUR/USD quotes read 1.3200/03, the spread is the difference between 1.3200 and 1.3203, or 3 pips. In order to
break even on a trade, a position must move in the direction of the trade by an amount equal to the spread.

• The major Forex pairs and their nicknames:

• Understanding Forex currency pair quotes:

You will need to understand how to properly read a currency pair quote before you start trading them. So, let’s
get started with this:

The exchange rate of two currencies is quoted in a pair, such as the EURUSD or the USDJPY. The reason for
this is because in any foreign exchange transaction you are simultaneously buying one currency and selling
another. If you were to buy the EURUSD and the euro strengthened against the dollar, you would then be in a
profitable trade. Here’s an example of a Forex quote for the euro vs. the U.S. dollar:
The first currency in the pair that is located to the left of the slash mark is called the base currency, and the
second currency of the pair that’s located to the right of the slash market is called the counter or quote currency.

If you buy the EUR/USD (or any other currency pair), the exchange rate tells you how much you need to pay in
terms of the quote currency to buy one unit of the base currency. In other words, in the example above, you
have to pay 1.32105 U.S. dollars to buy 1 euro.

If you sell the EUR/USD (or any other currency pair), the exchange rate tells you how much of the quote
currency you receive for selling one unit of the base currency. In other words, in the example above, you will
receive 1.32105 U.S. dollars if you sell 1 euro.

An easy way to think about it is like this: the BASE currency is the BASIS for the trade. So, if you buy the
EURUSD you are buying euro’s (base currency) and selling dollars (quote currency), if you sell the EURUSD
you are selling euro’s (base currency) and buying dollars (quote currency). So, whether you buy or sell a
currency pair, it is always based upon the first currency in the pair; the base currency.

The basic point of Forex trading is to buy a currency pair if you think its base currency will appreciate (increase
in value) relative to the quote currency. If you think the base currency will depreciate (lose value) relative to the
quote currency you would sell the pair.

• Bid and Ask price

Bid Price – The bid is the price at which the market (or your broker)
will buy a specific currency pair from you. Thus, at the bid price, a trader can sell the base currency to their
broker.

Ask Price – The ask price is the price at which the market (or your broker) will sell a specific currency pair to
you. Thus, at the ask price you can buy the base currency from your broker.

Bid/Ask Spread – The spread of a currency pair varies between brokers and it is the difference between the bid
and ask the price.