How Forex works: what are the basics?

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You often hear the term Forex in general media but also in specialized media. But what is Forex and how does it work? It is true that the first steps in the Forex currency market can be difficult, that's why we wrote this article to help you better understand the basics of Forex as well as how it works. Without further ado, discover our article below that we have written for this purpose.


Forex: what is it?

Forex is a foreign exchange market, where currency pairs trade like EUR/USD CHF/EUR... it is actually a market where investors and speculators can go and buy and sell currencies. For any beginner trader, it is essential to know how Forex works as we will show you in the rest of this article, but it is also important to know the basic terms of trading and which are:

  • Currency pairs
  • Forex listing
  • The pips
  • The spread
  • The margin
  • The leverage of Forex.
  • The swap
  • The lot or size of the contract.
  • CFDs
  • Forex platforms.

The pips

The pip represents the smallest variation in a currency pair. A currency is quoted with 4 digits after the comma and the pip represents the fourth digit after the comma

 The spread

The spread in Forex represents the difference or difference between the purchase price and the selling price.

 The margin

On Forex the initial margin represents the minimum amount you need to have in your trading account in order to open a position on Forex.

Forex leverage

The leverage of Forex is the ability to trade larger or larger volumes than what the trader has in his possession, with his trading capital.

 The swap

The swap in trading represents an interest rate that is applied to sessions that remain open for more than 24 hours.

 The lot

The lot in the Forex market represents the unit of value measuring the amount of a transaction,it is actually the size of the contract.

 The CFD

The CFD in Forex represents the contract between the client and the good Forex broker.

How does Forex work?

The functioning of forex is quite simple to assimilate, in fact, on the forex or currency market you will just have to bet on the evolution of currencies, in other words speculate up or even down currencies. But what are the most used currencies?

The main currencies used on Forex are:

  • The EURO EUR
  • The U.S. dollar USD
  • Pound sterling GPB
  • Swiss franc CHF
  • Yen Yen

But there are also other currencies that are frequently found on the Forex market such as:

  • The New Zealand dollar NZDUSD.
  • The Canadian dollar USDCAD.
  • The Australian dollar AUDUSD.

Here are also the currency pairs that are most common on Forex in the following list:

  • Euro and Dollar "EUR/USD"
  • Pound Sterling and Dollar "GPB/USD"
  • Euro and Swiss franc "EUR/CHF."
  • Euro and Yen "EUR/YEN."

The peculiarity of the Forex market and that currencies can be quoted in pairs,so that the value of one is based on the other. To be more explicit we will

give you an example: Buying a pair of EUR/YEN currencies in this case we bet on the rise of the euro relation to the yen, so we are also betting on the fall of the yen compared to the euro.

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