How Is Forex Trading Carried Out?

Forex trading is carried out slightly different than equities and bonds trading. Currency trading is carried out in pairs.

Currency traders have to deal with two instruments or currency pairs whereas stock trading involves only one instrument or buying or selling of company shares.

Traders executing currency trade exchange one currency for another in anticipation of a price change in his/her favor.

Let's look at to an example of EUR/USD pair trading at 1.33586/1.33614.

In this example, EUR/USD represents Euro/U.S.Dollar.

• The first currency (EUR) is also known as the base currency or transaction currency.


• The second pair USD is also known as the counter currency or quote currency.

The trading price of EUR/USD indicated at 1.33586/1.33614 is quoted for Euro with reference to the counter currency USD.

When EUR/USD is @1.33586/1.33614, then a trader can buy 1 Euro for U.S. dollar 1.33614 or sell 1 Euro for U.S. dollar 1.33586.

Forex trading is commission free. Brokers make their money from spreads, the difference between buy price (offer or ask) and sell price (bid). In our case the spread is 2.8. The lower the spread, the better price execution traders get which means more profit.

Since the forex market is a a two-way process, forex traders have an option to either first buy Euro sell U.S. Dollar or vice versa. When a trader opens a trade, he/she is essentially exchanging one currency for another. If the trader buys the first pair (EUR) the trader is also selling the second reference pair (USD) simultaneously.

The process actually is intricate, however: the broker software nearly makes this tedious process seamless. Therefore, when a trader foresees prices rise he/she buys (also said to be long or bullish) and when prices are expected to fall he/she sells (also said to be short or bearish).

The most traded currency pairs are viz:

• EUR/USD
• USD/JPY
• GBP/USD
• USD/CHF
• EUR/CHF
• AUD/USD
• USD/CAD
• NZD/USD
• EUR/GBP
• GBP/JPY
• GBP/CHF
• AUD/JPY

The forex trades are executed in units known as lot(s). A lot refers to a set quantity of money.

Regular (or standard) lot, mini lot, and micro lot are mostly prevalent among most forex brokers.

• A $100,000 unit is called a regular or standard lot


• A $10,000 unit is called a mini lot


• A $1000 unit is called a micro lot

For example: In a regular (or standard) lot $1000 controls $100,000 in currency using a 1:100 leverage. In other words, for every dollar a forex trader deposits in his/her broker account, the broker deposits $100. So if you deposit $1000 then you can control $100,000 for trading purposes.

Currency trade is carried out commission free via forex broker's dealing platform. Trading is simple as 1-2-3:

1. Open a real money account with Forex Broker
2. Login to forex broker provided dealing platform
3. Open a trade

That's how many brokers get beginner traders fooled interpreting forex as simple as 1-2-3 selling dreams how they can make piles of money while sleeping. As a consequence more than 90% of the retail traders fail and completely lose their money sooner or later.

Forex does offer plenty of opportunity to make money but it comes at a price -Education, Education and Education. So if you are serious, the first thing you might want to start is to educate yourself on forex education.

For other skeptical folks, follow what Benjamin Franklin said, ...