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• Video Tutorials
  • Intro
  • MetaTrader 4: Tips and Tricks
  • MetaTrader 4: Trade Window
  • MetaTrader 4: Platform Management
  • MetaTrader 4: Indicators and EAs
  • Systematic: Quick Start
  • Systematic: Selecting Your Systems
  • Systematic: Money Management
  • Systematic: Account Management
  • Alpari Research: Technical Reports
  • What is Forex and How Does It Work?
  • Pair Characteristics
  • Introduction to Charting
  • Introduction to Technical Analysis
  • Risks
  • Using Technical Indicators
  • Introduction to Fundamental Analysis
  • Gold and Silver
  • Money Management
  • Position Sizing
  • Understanding and Trading the News
  • Earning Interest in Forex
  • Introduction to Fibonacci Analysis
  • Economic Indicators
• Autochartist
  • Intro
  • Download Autochartist
  • Autochartist Tutorials
• Market Analysis Guide
  • Intro
  • Technical Analysis Guide
  • Bill William’s Chaos Theory
  • Japanese Candlesticks Theory
• Glossary

Introduction to Forex

The Foreign Exchange Market (Forex) is the arena in which a nation's currency is exchanged for that of another at a mutually agreed rate. It was created in the 1970's when international trade transitioned from fixed to floating exchange rates, and is now considered to be the largest financial market in the world because of its huge turnover.

All currencies are traded in pairs and each is assigned with an abbreviation. Here are some of them:

The "Base" currency is the first currency in the pair. The "Quote" currency, or "term" currency is the second currency in the pair.

This abbreviation specifies how much you have to pay in the quote currency to obtain one unit of the base currency (in this example, 120.25 Japanese Yen for one US Dollar). The minimum rate fluctuation is called a point or a pip.
     
Most currencies, except USD/JPY, EUR/JPY, CHF/JPY and GBP/JPY where a pip is 0.01, have 4 digits after the period (a pip is 0.0001), and sometimes they are abbreviated to the last two digits. For example, if EURUSD is traded at 1.2389/1.2391 the quote may be abbreviated to 89/91.

The currency pairs on Forex are quoted as the Bid and Ask (or Offer) prices:

Bid is the rate at which you can sell the base currency, in our case it's the US dollar, and buy the quote currency, i.e the Japanese Yen.

Ask ( or Offer) is the rate at which you can buy the base currency, in our case the US dollar, and sell the quote currency, i.e. the Japanese Yen.

Spreads are the difference between the Bid and the Ask prices.

Pip is the smallest price move a  currency can make. Also known as a point. e.g. 1 pip = 0.0001 for EUR/USD, and 0.01 for USD/JPY.

The currency Rate is the value of one currency expressed in terms of another. The fluctuation rate depends on numerous factors including the supply and demand on the market and/or open market operations by a government or by a central bank.

1.0 lot size for different currency pairs:

Read more:

• Why Trade Forex?
• Spreads & Margins
• Rollover / Interest Policy

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