What is Forex Trading?
Everything you’ll need to know about forex trading, including what it is, how you trade on the forex markets and how leverage in forex works.
January 22, 2021
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Forex trading, also known as foreign exchange or (FX) trading, is the conversion of one currency into another. The Forex market is one of the most actively traded markets in the world, with individuals, companies and banks carrying out around $6.6 trillion worth of forex transactions every single day.
A forex pair is a combination of two currencies that are traded against each other. There are hundreds of different combinations to choose from, but some of the most popular include the euro against the US dollar (EUR/USD), the US dollar against the Japanese yen (USD/JPY) and the British pound against the US dollar (GBP/USD).
So you’ve probably heard of the terms “pips,” “points“, “pipettes,” and “lots” thrown around, and now we’re going to explain what they are and show you how their values are calculated.
The unit of measurement to express the change in value between two currencies is called a “pip.”
If EUR/USD moves from 1.1050 to 1.1051, that .0001 USD rise in value is ONE PIP.
A pip is usually the last decimal place of a price quote.
Most pairs go out to 4 decimal places, but there are some exceptions like Japanese yen pairs (they go out to two decimal places).
For example, for EUR/USD, it is 0.0001, and for USD/JPY, it is 0.01.
Forex is commonly traded in specific amounts called lots, or basically the number of currency units you will buy or sell.
A “lot” is a unit measuring a transaction amount.
When you place orders on your trading platform, orders are placed in sizes quoted in lots.
It’s like an egg box. When you buy eggs, you usually buy a carton (or box). One carton includes 12 eggs.
Some brokers show quantity in “lots”, while other brokers show the actual currency units.
As you may already know, the change in a currency value relative to another is measured in “pips,” which is a very, very small percentage of a unit of currency’s value.
Are you looking to start trading? Make sure you've done some real research before you jump into anything and even more important make sure the money you are going to invest is disposable funds to you. We don't advise anybody to trade with their last $100.
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