01 — Euro vs. US Dollar
EUR/USD
Euro vs. US Dollar
The world's most-traded pair — the deepest liquidity in FX.
Module 03
What is Forex?
If you're not quite sure what Forex is, don't worry — you may be more familiar with another of its names: the Foreign Exchange Market, Spot FX, Spot, or simply FX.
The basics
The world's biggest market.
FOREX is the largest financial market in the world in terms of both size and liquidity. To give you a general idea of the size, an average of $3 trillion is traded globally each day. No stock market in the world trades such a huge amount on a daily basis.
The idea of FOREX is simple really; it's the exchange of one country's currency for the currency of another country. With FX you're essentially buying one currency and selling the other — and so naturally FX is traded in pairs, such as the pound and the US Dollar (GBP/USD).
Daily volume
$3T
Traded globally every day across the FX market.
Trading hours
24/5
Open Sunday 22:00 GMT — Friday 22:00 GMT.
Venue
OTC
No central exchange — electronic, between banks worldwide.
The Majors
The four most-traded pairs.
Some FX pairs are more popular than others. These four — referred to collectively as "the Majors" — account for the bulk of daily flow.
- 02 — British Pound vs. US Dollar
GBP/USD
British Pound vs. US Dollar
Known as "Cable" — a long-standing benchmark of UK/US flow.
- 03 — US Dollar vs. Japanese Yen
USD/JPY
US Dollar vs. Japanese Yen
Sensitive to interest rate differentials and Asian session flow.
- 04 — US Dollar vs. Swiss Franc
USD/CHF
US Dollar vs. Swiss Franc
The Franc is a classic safe-haven currency in times of stress.
Always open
Open 24 hours a day, five days a week.
At almost any point during the day there's always a financial centre somewhere in the world open for business. The FX market is open 24 hours a day and only closes at weekends — between 22:00 GMT on Friday and 22:00 GMT on Sunday.
| Region | City | Open (GMT) | Close (GMT) |
|---|---|---|---|
| Europe | London | 08:00 | 17:00 |
| Europe | Frankfurt | 07:00 | 16:00 |
| America | New York | 13:00 | 22:00 |
| America | Chicago | 14:00 | 23:00 |
| Asia | Tokyo | 00:00 | 09:00 |
| Asia | Hong Kong | 01:00 | 10:00 |
| Pacific | Sydney | 22:00 | 07:00 |
| Pacific | Wellington | 22:00 | 06:00 |
How it trades
A homeless market.
The Foreign Exchange market is homeless — by that we mean it has no set physical location. Homeless markets are known as OTC (Over-the-Counter) markets, in which all trades are processed electronically 24 hours a day between banks around the world.
Unlike other financial markets, Forex does not have an exchange centre — so you can pretty much trade FX anywhere in the world, at any point in time. But there are peak trading session times in each region.
Pips
What the pip!?
PIP stands for "percentage in point" and is the smallest possible increment in a quote — essentially the last decimal place of the quotation. Most currency pairs are quoted to 4 decimal places, but not all.
GBP/USD @ 1.5696
1 pip = 0.0001
USD/JPY @ 123.45
1 pip = 0.01
Lots
Standard lots and micro lots.
One of the first concepts to grasp in Forex training: standard lots and micro lots — what they are, and the difference between them.
01 — Standard lot
Standard lot
A standard forex lot is equal to 100,000 of the base currency — so on EUR/USD, that's EUR 100,000. For a pair quoted to 4 decimal places, the average pip size on a standard lot is 10 of the counter currency — in this case $10. If you're down 10 pips on a standard EUR/USD contract, you've lost $100.
Standard lots are typically for institutional-sized accounts — $25,000+ to trade safely at this size.
02 — Micro lot
Micro lot
Micro lots are good for beginners getting to grips with Forex. A micro lot is the equivalent of 1,000 of the base currency — 100× smaller than a standard lot. 1 pip in a micro lot is worth 0.10 of the counter currency (4-decimal pairs) or 10 (2-decimal pairs).
Start small, work your way up — the maths is the same, just scaled.
Pip movements
How pip movements translate to P/L.
- 5th decimal (micro pip)100,000 × 0.00001$1.00
- 4th decimal (1 pip)100,000 × 0.00010$10.00
- 3rd decimal (10 pips)100,000 × 0.00100$100.00
- 2nd decimal (100 pips / Big Figure)100,000 × 0.01000$1,000.00
- 1st decimal (1,000 pips)100,000 × 0.10000$10,000.00
- 3rd decimal (micro pip)100,000 × 0.001¥100
- 2nd decimal (1 pip)100,000 × 0.010¥1,000
- 1st decimal (10 pips)100,000 × 0.100¥10,000
- Big Figure100,000 × 1.000¥100,000
Lot sizes at a glance
Standard vs. micro — side by side.
| Base | Counter | Decimals | Standard lot | Micro lot | Standard pip | Micro pip |
|---|---|---|---|---|---|---|
| EUR | USD | 4 | EUR 100,000 | EUR 1,000 | USD 10 | USD 0.10 |
| USD | JPY | 2 | USD 100,000 | USD 1,000 | JPY 1,000 | JPY 10 |
Reading a quote
How to read an FX quote.
Currencies are always traded in pairs — when you buy one, you're selling the other. Every quote has a base currency (the first) and a counter / quote currency (the second).
Direct quote
EUR/USD = 1.1200 → €1 = $1.12
USD is the counter currency. Anything quoted against the US Dollar as the counter is a direct quote.
Indirect quote
USD/JPY = 125.00 → $1 = ¥125
USD is the base currency. Anything where the US Dollar is the base is an indirect quote.
Bid, Ask & Spread
Every quote has two prices.
01
Bid
The price at which the other party is willing to buy the base currency from you. Click the bid if you want to SELL.
02
Ask
The price at which the other party is willing to sell the base currency to you. Click the ask if you want to BUY.
03
Spread
The difference between the bid and the ask — the cost paid to the market maker. The bid is always lower than the ask.
Long & short
Going long vs. going short.
Trader lingo. Just remember: LONG = BUY, SHORT = SELL.
LONG = BUY
Going long
Buying the base currency and selling the quote currency — what you do when you think the base will rise.
Go long EUR at 1.1200. EUR rises to 1.1400 — your euros are now worth $1.14 instead of $1.12.
SHORT = SELL
Going short
Selling the base currency and buying the quote currency — what you do when you think the base will fall.
Go short EUR at 1.1200. EUR falls to 1.1000 — you buy back cheaper and pocket the difference.
