What are the basics of Forex trading?

• The word FOREX is derived from the words Foreign Exchange and is the largest financial market in the world.

• Foreign Exchange is literally the simultaneous buying of one currency and selling of another.

• The Forex market is unique to other markets in that it is open 24 hrs per day.

• Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, then to London, and finally to New York.

• USD = U.S. dollar
• JPY = Japanese yen
• EUR = Euro
• GBP = British pound
• CHF = Swiss franc
• CAD = Canadian dollar
• AUD = Australian dollar

Forex operates by currencies trading in pairs.

Currency pair = two currencies that make up an exchange rate. In a currency pair there is a base currency and a quote currency. The base currency is the first currency in the pair and the quote currency is the second currency in the pair. One currency is bought and the other is sold.

Example 1:

Euro/U.S. dollar is represented as (EUR/USD). If a quote for EUR/USD is 1.23, it simply means that 1 euro is equal to 1.23 U.S. dollars.

Non-USD Base Currency Quote

EUR/USD	1.2815/18
	Bid	Ask

* The base currency is represented in blue and the quote currency is represented in red.

*The bid price is displayed on the left side and is the price that you can sell the base currency.

*The ask price is displayed on the right side and is the price that you can buy the base currency.

Example 2:

U.S. dollar/Japanese yen is represented as (USD/JPY). A quote for the USD/JPY at 109.50 simply means that 1 U.S. dollar is equal to 109.50 Japanese yen.

USD Base Currency Quote

USD/JPY	109.50/55
	Bid	Ask

In this example, if you 'hit the bid' you will sell US $1 and buy 109.50 Yen. If you want to buy dollars and sell Yen, you will 'lift the offer' and pay 109.55 Yen for US$ 1

Forex markets move in what are called pips.

A pip (price interest point) is the smallest unit of price for any foreign currency.

• EUR/USD trading from 1.2300 to 1.2301 = a gain of 1 pip
• USD/JPY trading from 108.01 to 108.09 = a gain of 8 pips
• GBP/USD trading from 1.8302 to 1.8311 = a gain of 9 pips
• EUR/USD trading from 1.2300 to 1.2401 = a gain of 101 pips

How to calculate a pip value:

• (One pip, including decimal point/current exchange rate) X (notional amount)
• For the EUR/USD this translates into: (.0001/1.2935) X (E 100,000) = Euro 7.73096
• But, we want the pip value in U.S. dollars, not euro, so we go one step further: 7.73096 X current exchange rate (1.2930) = $10.00 per pip.