Forex is the market where you swap one currency for another. You make money if the currency you bought goes up in value.
How forex works
Every trade uses a pair, like EUR/USD. The first currency is the base. The second is the quote.
EUR/USD = 1.0842means one euro costs 1.0842 dollars.- Think the euro will rise? You buy the pair.
- Think it will fall? You sell the pair.
- Your profit or loss is the price change times your trade size.
You never hold real cash. Your broker shows the price. You open and close the trade. The difference goes into your account or out of it.
Why prices move
- Central banks raise or cut interest rates.
- Big news comes out, like inflation or jobs numbers.
- Money runs to the dollar and gold when people are scared.
That is why a good signal comes with a short reason.
Words you will see on day one
| Word | Plain meaning |
|---|---|
| Pip | The smallest usual price step, 0.0001. |
| Lot | The size of your trade. |
| Spread | The gap between buy and sell price. The broker’s fee. |
| Leverage | Borrowed buying power. |
| Stop loss | An order that closes the trade at a set loss. |
| Take profit | An order that closes the trade at a set gain. |
Example
Gold XAU/USD is at 2,400. You think it will rise.
- You buy 0.01 lot.
- Stop loss at 2,390. Take profit at 2,420.
- On 0.01 lot, each 1-dollar move is worth about 1 dollar.
- If gold reaches 2,420, you gain about 20 dollars.
- If gold drops to 2,390 first, you lose about 10 dollars.
The stop loss is the most important part of any trade. It decides how much you lose when you are wrong.
Mistakes to avoid
Before your first trade, pick a licensed broker. Practise on a demo account. Write a plan for every trade.
- Trading without a stop loss.
- Using the highest leverage the broker offers.
- Adding to a losing trade and hoping.
- Risking more than 1 to 2 percent of your account per trade.
- Expecting to replace your salary in month one.
Forex can lose you money fast. Start small. Next, read what a pip is, since every move is measured in pips.
Questions, answered plainly.
Is forex the same as the stock market?
No, in stocks you buy a piece of a company, while in forex you swap one currency for another.
Can I start forex with a small amount?
Yes, many brokers open accounts from 100 dollars or less, but start on a demo account first.
Is forex trading risky?
Yes, prices move fast and leverage makes both gains and losses bigger, so you can lose your whole deposit.