What is FOREX?

FOREX (Foreign Exchange Market)

Foreign Exchange Market is the arena where a nation's currency is
exchanged for that of another at a mutually agreed rate. FOREX
market has been formed in 70th, when international trade has
changed from system of fixed rates to system of floating rates of
exchange.

In fact, every national currency is merchandise, like wheat ore
sugar, the same medium of exchange, like gold and silver. Since
the world changes every year faster and faster, that economic
conditions of every single country (labor productivity, inflation,
unemployment and so on.) depend on level of development of
another countries more and more, and this, in turn, impacts on
value of its currency regarding currencies of another countries.
This is the main reason of the process of rate fluctuations.

Currency Symbols

EUR Euro


USD US Dollar


GBP British Pound


JPY Japanese Yen


CHF Swiss Franc


AUD Australian Dollar


CAD Canadian Dollar


NZD New Zealand Dollar


SEK Sweden Kronor


DKK Denmark Kroner


NOK Norway Kroner


SGD Singapore Dollar


ZAR South Africa Rand

Currency Exchange Rate

Currency exchange rate is simply the ratio of one currency valued
against another. For example, "EUR/USD exchange rate is 1.2505"
means that one euro is traded for 1.2505 dollars.

The exchange rate of any currency is usually given as a bid price
(left) and an ask price (right). The bid price represents what has
to be obtained in the quote currency (US Dollar in our example)
when selling one unit of the base currency (Euro in our example).
The ask price represents what has to be paid in the quote
currency (US Dollar in our example) to obtain one unit of the
base currency (Euro in our example). The difference between the
bid and the ask price is referred to as the spread.

1.0 lot size for different currency pairs (Table 2)


Currency 1.0 lot size Necessary margin for 1 lot 1 pips


EURUSD EUR 100,000 1000 EUR 0.0001


USDCHF USD 100,000 1000 USD 0.0001


GBPUSD GBP 70,000 700 GBP 0.0001


USDJPY USD 100,000 1000 USD 0.01


AUDUSD AUD 200,000 2000 AUD 0.0001


USDCAD USD 100,000 1000 USD 0.0001


EURCHF EUR 100,000 1000 EUR 0.0001


EURJPY EUR 100,000 1000 EUR 0.01


EURGBP EUR 100,000 1000 EUR 0.0001


GBPJPY GBP 70,000 700 GBP 0.01


GBPCHF GBP 70,000 700 GBP 0.0001


EURCAD EUR 100 000 1000 EUR 0.0001


EURAUD EUR 100 000 1000 EUR 0.0001


NZDUSD NZD 200,000 2000 NZD 0.0001


USDSEK USD 100,000 1000 USD 0.0001


USDDKK USD 100,000 1000 USD 0.0001


USDNOK USD 100,000 1000 USD 0.0001


USDSGD USD 100,000 1000 USD 0.0001


USDZAR USD 100,000 1000 USD 0.0001


CHFJPY CHF 100,000 1000 CHF 0.01

Let's assume that exchange rate for EUR/USD is 1.2505/1.2509.
You may have made market analysis and decide the EUR/USD rate
is moving higher (at least to 1.2600). You buy 0.1 lot (minimum
contract size) of EUR/USD at the 1.2509 (ask price). Table 1 will
help you to define what the contract size is: i.e. 1.0 lot for
EUR/USD is 100 000 EUR, then 0.1 lot (our contract size) is 10
000 EUR.

This means that you bought 10 000 EUR and sold 10
000*1.2509=12,509 USD. So, in order to make a deal you don't

have to sell total amount of 12.509 USD but 100 times less just
$125.09. The rest sum of the money (in our example $12,383.91)
is leveraged to you by a broker (a company you entered the
contract with to enter the market).