Frequently Asked Questions

Forex, also known as foreign exchange, FX or currency trading, is a decentralized global market where all the world’s currencies trade. The forex market is the largest, most liquid market in the world with an average daily trading volume exceeding $6.5 trillion. In forex, a currency pair is the value of one currency (the base currency) in terms of the other (the counter currency). A currency’s value is based on the strength of an economy, political stability, interest rate, inflation, productivity, trade balance and risk.

Leverage in forex trading is the use of borrowed funds to amplify the potential returns on an investment. In the foreign exchange market, leverage can be applied by investing with forex brokerages that offer margin accounts to their clients. Ordinarily, traders cannot spend more than they have in order to make a trade.

When trading with leverage, you don’t need to pay the full value of your trade upfront. Instead, you put down a small deposit, known as margin. When you close a leveraged position, your profit or loss is based on the full size of the trade.

This means that leverage can magnify your profits, but it also brings the risk of amplified losses – including losses that can exceed your initial deposit. Leveraged trading, therefore, makes it extremely important to learn how to manage your risk.

Pips are the units used to measure movement in a forex pair. A forex pip usually refers to a movement in the fourth decimal place of a currency pair. So, if EUR/USD moves from $1.3531 to $1.3532, then it has moved a single pip. The decimal places that are shown after the pip are called micro pips, or sometimes pipettes, and represent a fraction of a pip.

The exception to this rule is when the quote currency is listed in much smaller denominations, with the most notable example being the Japanese yen. Here, a movement in the second decimal place constitutes a single pip. So, if EUR/JPY moves from ¥172.19 to ¥172.18, it has moved a single pip.

Currencies are traded in lots – batches of currency used to standardise forex trades. In forex trading, a standard lot is 100,000 units of currency. Alternatively, you can sometimes trade mini lots and micro lots, worth 10,000 and 1000 units respectively.

Individual traders don’t necessarily have 100,000 dollars, pounds or euros to place on every trade, so many forex trading providers offer leveraged accounts.

The foreign exchange market is primarily over-the-counter (OTC.) It occurs either via electronic platforms or on the phone between banks and other participants. Only 3% of trades, mostly futures and options, is done on exchanges.

All currency trades are done in pairs. When you sell your currency, you receive the payment in a different currency.Every traveler who has gotten foreign currency has done forex trading.

For example, when you go on vacation to Europe, you exchange dollars for euros at the going rate. You sell U.S. dollars and buy euros. When you come back, you sell euros and buy U.S. dollars.

A Forex broker is a person or a company that acts as a middleman in financial transactions. Basically, a broker will offer to buy and sell currencies for its clients, and make a profit on the spread (the difference between the buy and sell prices).

There are two types of Forex brokers: retail brokers and market makers. Retail brokers offer foreign currency trading to retail customers. Retail brokers generally do not offer to buy and sell currencies to one another. Market makers offer both buy and sell positions and act as market makers on one side of a transaction when a customer places an order. Many market makers also offer retail brokerage services to retail customers.