Forex Trading and Brokers

Forex refers to the foreign exchange market, where brokerage firms and banks are connected over an electronic network that allows them to convert the currencies of countries around the globe. The forex market is the largest and most liquid financial market in the world. While forex trading used to be executed exclusively between government central banks and commercial and investment banks, trading forex has become increasingly accessible to private investors thanks to the PC and internet.

Foreign Exchange is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY). For example, you would execute a trade when you expect the currency you are buying to increase relative to the one you are selling. If the currency you are buying increases in value, you must sell the other currency to close the position and take a profit. The first currency in the pair is called the base currency and the second is called the counter or quote currency. Usually the US currency is the base currency and quotes are given in $1 USD per counter currency, e.g. USD/JPY. The exceptions are the British Pound, the Euro and the Australian Dollar.

Understanding contract size in forex trading: The contract size is normally a lot of 100,000. This means per standard contract you are controlling 100,000 units of each pair, so if you are buying EUR/USD you would be buying 100,000 Euro's and selling 100,000 dollars simultaneously. For this contract size, each pip (the smallest price increment) is worth $10. Many firms offer mini accounts now where you can trade units of 10,000, where the pip value is $1.

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