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Forex, as you know, stands for Foreign Exchange and is a good way to take your investments and turn them into profits. Basically, in Forex, you are buying one currency (ie. Japanese Yen) while buying another (ie. Euro or US Dollar). Foreign Exchange is basically traded in pairs as well. The major currencies traded in pairs through Forex are:

US Dollar (USD)
Japanese Yen (JPY)
Euro (EUR)
British Pound (GBP)
Swiss Franc (CHF)
Canadian Dollar (CAD)
Austrailian Dollar (AUD)

Most daily forex trading happens in these major currency pairs, more than 85% to be exact. The biggest advantage to Forex trading is that it doesn’t close at the end of the day! That’s right, you can trade Forex 24-hours per day without any complications whatsoever.

READING QUOTES

The next thing you need to know is how to read quotes from forex. When reading foreign exchange quotes, you must remember two important things:
(1) The base currency is the first currency listed always
(2) The value of the base currency is ALWAYS 1.

The almighty US Dollar is usually considered the base currency for quotes. So, when you have USD/JPY, this means that 1 US Dollar is equal to X number of Japanese Yen. For example, if the quote reads USD/JPY - 95.79 ^ 0.0627 then 1 US Dollar equals 95.79 Japanese Yen and there is a 0.0627% change either positive (Green in color) or negative (Red in color).

Green means that the base currency, take the USD above as example, has strengthened and can buy more of that currency.
Red means the opposite and the base currency has declined in market value so it cannot buy as much of that currency as before.

3 Exceptions to this Rule of Thumb:
British Pound (GBP)
Euro (EUR)
Austrailian Dollar (AUD)

These 3 major pairs of currency have an exception to the rule above. A rising quote here means that they USD is weakening and cannot buy as much of that currency. The USD is not the base currency in this situation -> GBP/USD.

ASK/BID SIDES OF THE MARKET

Forex consists of 2 sides of the market which are Ask and Bid.

The ASK is the side in which you can Buy base currency
The BID is the side in which you can Sell base currency

WHAT YOU SHOULD KNOW ABOUT PIPS

PIP is an acronym that stands for “Percentage In Point” and they are the increments in which forex prices are quoted. A PIP refers to 1/100th of 1% OR the 4th decimal point out. For example, if the USD/EUR is trading at 1.4000 and the exchange rate changes to 1.4010 then the PIP here is 10 pips. Same goes for 120.00 to 120.10 -> 10 pips.

LEVERAGE AND MARGIN THROUGH FOREX

Best advantage of Forex is that it offers you more leverage than stocks or bonds. However, the negative to this is that it increases your risk but investing any amount of money into anything involves risk. Not to get off subject but the computer that you are using to read this involved a risk on your part to invest a set amount of money into knowing that it could crash the next day. Life involves risk in anything you do but trading on forex is a risk that you will be happy to invest your money and time into because you can get alot out of it.

Now, to decrease the investment risk in forex there is a little trick that you can do to minimize the risk of losing your money and that is to monitor your account regularly and use stop-loss orders on every open position. You can’t do this with stocks!

CALCULATING YOUR PROFITS AND LOSSES

Let’s say you buy EUR/USD for 1.4616/19 (you can buy 1 EUR for 1.4619 and sell for 1.4616) and you purchase 100,000 Euros at $146,190 US dollars (100,000 x 1.4619). Now, the Euro weakens a few days later at 1.4611/14. To minimize your losses you sell 100,000 Euros at 1.4611 and receive $146,110 USD. You bought Euros at 1.4619 and sold at 1.4611, a difference of 8 pips, and a loss of $80.00 (146,190 - 146,110).

Another example using same numbers as above. Again, you purchase 100,000 EUR for 146,190 USD and at 1% Margin your deposit would be $1,461. Now, the Euro strengthens to 1.4623/26 (sell for 1.4623 and buy for 1.4626). To realize profits you sell the 100,000 EUR for 1.4623 making $146,230 USD. Okay, you paid for 100,000 EUR at $146,190 and sold them at $146,230 (146,230 - 146,190) a profit of $40.00.

These are your basics of Forex trading.