An introduction to forex
Understand currency pairs, trading costs and leverage before you open a position.
What a currency pair tells you
A currency pair expresses the price of one currency in another. In EUR/USD, EUR is the base currency and USD is the quote currency. An illustrative EUR/USD price of 1.1000 means one euro is worth $1.10. This example is not a current quote.
Buying a pair gives exposure to the base currency rising relative to the quote currency; selling gives the opposite exposure. A leveraged forex position is different from exchanging spending money for a holiday.
Read both sides of the price
The bid is the price at which you can sell; the ask is the price at which you can buy. Their difference is the spread. Depending on your account, commission, overnight financing and currency conversion may also affect the result.
A pip describes a conventional unit of price movement, but its cash value depends on the pair, position size and account currency. Read the instrument specification instead of assuming the same value for every symbol.
Margin is not your maximum possible loss
Margin is the amount required to support a leveraged position. Leverage increases exposure relative to that amount and magnifies the effect of price changes. A small adverse movement can cause a large loss, and losses may exceed the initial deposit depending on the account agreement.
Review margin-call and stop-out levels before trading. These controls are not a substitute for understanding your exposure.
Learn the workspace before placing orders
Use the chart to understand the displayed timeframe and price source. Check order types, contract size, trading sessions and charges. A stop-loss instruction may execute away from its requested price during a gap or fast market.
Keep notes on why you considered a trade, the amount at risk and how the actual outcome compared with your plan. Learning the interface or testing a strategy does not establish that it will be profitable.
A practical starting checklist
- Read the account conditions and the agreement for the entity serving you.
- Identify the base currency, quote currency and contract size.
- Understand the spread, commission and any overnight charges.
- Check exposure, available margin and the effect of an adverse price move.
- Only consider money whose loss would not compromise essential obligations.
Further reading
This guide explains concepts and ways to organise your research. It is not a recommendation to trade, a personal allocation plan or a promise of returns. Read the Terms of Business and your account conditions.