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5/3/20232 min read

Forex = Foreign Exchange

It is a market where people exchange one country’s currency for another country’s currency. It is called the cash market or spot market. The spot market means trading right on the spot at whatever the price is at the moment the transaction occurs. This market was established in 1971. The Forex market is the arena in which the currencies of countries around the globe are exchanged for one another. Payments for import and export purchases and the selling of goods or services between countries all flow through the foreign exchange market. This part of the Forex market is called the consumer Forex market and this is where the majority of the daily volume takes place.

How Do Traders Profit or Loss?

pair: is an exchange rate between 2 currencies. For example, Eur/Usd is a pair, it value is the exchange rate of Euro and US dollar. If it is 1.1 that means 1 Euro is equivalent to 1.1 USD.

pip: is an acronym for price interest point. The pip system monitors price movements in the market. Pips are usually measured in decimals. For Eur/Usd, one pip is a move of 0.0001 in price. For example: the price of the pair goes up from 1.1000 goes up to 1.1001.

leverage: Trading with leverage means you are either borrowing or using someone else’s money to trade. You do this by posting a deposit with a broker who will let you use their money. When no leverage is used, meaning leverage is 1:1, to open a $1,000 worth trade, it will requires $1,000. If the leverage is 1:200 then that same $100 worth trade requires only 1,000* (1/100) = $10. This means $10 can control a trade that worth $1,000.

lot: Trading on the Forex is done in currency lots. There are three types of lots. A micro lot is approximately $1,000 worth of a foreign currency. A mini lot is approximately $10,000 worth of a foreign currency. A standard lot is approximately $100,000 worth of a foreign currency. A $1,000 worth trade mentioned above is equivalent to 1 micro lot (approximately, this is correct for most pairs). From now on we will only use standard lot to mention "lot" for simplification. Instead of saying 1 micro lot, we can say 0.01 lot,... For most brokers, 0.01 lot is the smallest lot size to trade.

margin: If a trader buy 0.01 lot of Eur/Usd at 1.1, with the leverage of 1:100, the margin used is $10. Trade value is $1,000 (0.01 lot).

profit (loss), unrealized profit (loss): Now if the price of Eur/Usd pair go up. The trade mentioned above will now have an unrealized profit. If the trader close this trade, that unrealized profit is now realized, meaning it become a profit (the balance goes up). Remember there are fees to trade which traders have to study carefully to integrate them into their strategy.

In short if a trader buy some amount of a pair, when the price of that pair goes up, the trade is in profit and if close at that time it is a profit. It will be a loss if the price goes down and the trade is closed (either by hitting stop loss or by the trader). It is similar for selling a pair.

You can go to many websites to learn more about this. A good place is