In the forex market, transactions are always handled in pairs, such as GBP/USD, and that’s the way you’ll always see them quoted.

Here’s a graphic, from the free MetaTrader chart program, that shows how the currencies are paired and the Bid and Ask prices, explained in a later blog.

3. Currency Pairs in MetaTrader

In the pairs, the first currency (GBP in the pair GBP/USD) is known as the base currency; the second currency (here USD) is the quote, or “cross,” currency. The value of the base currency is always 1, in this case, 1 British pound. More about this in a moment.

Suppose you expect the base currency to go up in value compared to the cross currency it’s paired with. You place an order to BUY the pair, and you’re actually buying one currency and selling another one, simultaneously with one order.

If it turns out you were correct and want to collect your profit, you “close out” the trade, which performs another trade in the reverse direction. That is, closing the order automatically places an order to SELL the pair, and you’re simultaneously selling the base currency you originally bought and buying the cross one you sold. It’s important to note that in the MetaTrader platform, you need to specifically “close out” the transaction. If you place an order in the opposite direction, you will wind up with two live opposing orders—not the situation you’re aiming for.

Remember, the short names for some of the currencies are:

USD = United States Dollar – greenback, buck
EUR – Euro - European Monetary Union currency. The current members of the EMU are Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain and Portugal.
GBP – British Pound – sterling or cable
CHF – Swiss Franc – Swissie
JPY – Japanese Yen
CAD – Canadian Dollar – loonie
AUD – Australian Dollar – Aussie
NZD – New Zealand Dollar - kiwi

The most-widely traded pairs are these:

EUR/USD
GBP/USD
USD/JPY
USD/CHF

Followed by these:

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

Generally speaking, the currency pairs that move the most are the USD/CHF, the GBP/USD, the EUR/USD, and the USD/JPY. Many traders concentrate on trading only one or two pairs; others trade every pair available.

Next: How to Read a Forex Quote

Before talking more about how to trade in the forex market, let’s learn something about it.

More than two trillion dollars a DAY passes through the world currency market, better known as the foreign exchange, or forex, market. To put this in perspective, the stock market trades an average of 50 billion dollars per day.

Unlike the stock market or the futures market, the forex market doesn’t operate from a fixed location; it trades mostly over computer terminals. The bulk of the trading is centered in London, Singapore, New York and Tokyo, but smaller areas participate, too.

Until recently, only large financial institutions and international firms could trade the forex market, but now we individual investors may, too, on our own computers through brokers. I’ll explain more about how to work with brokers in a later blog.

2. Typical Forex Chart – Candlestick Style

0.1 lot, called one lot in a mini account, controls $10,000 worth of currency with a margin requirement of just $50 per lot, which equals a leverage of 200:1.

0.01 lot, minimum size in a “micro” account, controls $1,000 worth of currency.

Leverage can lead to large losses as well as gains, so it’s extremely important to use effective money management to control your risk. Money management will be discussed in a later blog.

The forex market is the most accessible market in the world. It’s open around the globe for 24 hours a day, for nearly six days a week. It’s also the most liquid market: transactions take place in seconds.

Each week at 7 p.m. Sunday, United States ET, the market’s cycle starts with the Asian trading session, followed by the European session, and then the United States session, and continues this cycle until the United States session ends on Friday at 4 p.m. ET. Nearly 90% of transactions on the forex trade market involve the U.S. dollar, so the United States’ economy exerts wide influence.

The three major forex trading sessions are as follows, all in United States Eastern Time (ET):

1. New York — 8:00 AM to 4:00 PM
2. Asian/Australian — 7:00 PM to 3:00 AM
3. London — 3:00 AM to 11:00 AM

If you need help in converting the ET zone to your time zone, there’s a world time zone converter here:
http://timeanddate.com/worldclock.

Notice that the New York and London trading sessions overlap between 8 a.m. and 12 noon ET. During these hours, volatility tends to be much higher, trading opportunities more frequent, and moves bigger. The London session, by itself, handles more transactions than any other. But the other time frames can be traded, too. Even those people who work all day can trade the evening hours, and if they’ve learned how to trade the forex market, they can be successful.

As a first step, let’s learn the short names often used for some of the currencies:

USD = United States Dollar – greenback, buck
EUR – Euro - European Monetary Union currency. The current members of the EMU are Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain and Portugal.
GBP – British Pound – sterling or cable
CHF – Swiss Franc – Swissie
JPY – Japanese Yen
CAD – Canadian Dollar – loonie
AUD – Australian Dollar – Aussie
NZD – New Zealand Dollar - kiwi

Trading the foreign exchange market gives you a great, but risky, opportunity to speculate on price fluctuations of currencies in many countries. Some individuals have become very wealthy through trading the forex. Others have lost all of their investment. Proper preparation and careful analysis of the currency markets is definitely a necessity. Starting with an investment of as little as $100, however, and growing it into large amounts is a real possibility.

Next: How Forex Transactions Work

You’ve probably heard a lot about the possibilities of making large sums of money if you can learn how to trade the forex market. I heard those stories, too, and I decided to investigate.

It’s no secret that the economy’s in a near-recession, the stock market’s in a turmoil, and people are losing their jobs, their businesses, and their homes. Almost everyone has had to cut back on their expenses, and many people are looking for potential ways to boost their income, including me.

Because of my circumstances, I needed to find some kind of work I could do at home. I’d wanted a home job for a long time, and I spent many hours looking for, and sometimes trying, various possibilities. None of them worked for me.

Finally, I heard about the foreign exchange market. The market doesn’t have a specific location or a central exchange. It’s run electronically and handles exchanges of currencies among a network of banks all over the world for 24 hours a day, more than five days a week.

A shortened name for this market is the forex, or FX, market. For a long time, only the big money players could trade this market, but eventually, individuals were permitted to enter trades. Now, anyone with access to a computer can take part in this market. Everything I read about this opportunity intrigued me, so I began to study how to trade the forex market.

After a while, it occurred to me that other people might be interested in learning about forex trading without having to surf to a hundred different spots (or pay big money for a course!) to uncover all the ins and outs of trading the foreign exchange markets. So I decided to start this blog to help you understand just what the forex market is, how to read and analyze charts, and how even the little guy or gal has the potential to make money – sometimes big money – trading the FX.

Table 1. Typical Forex Chart – Bar Style

Tons of information is available. Don’t let it overwhelm you. I’ll try to sort through it and present the basics in as clear and simple a way as possible. Just keep reading this blog, and together, let’s hope we can learn enough to become knowledgeable and successful traders.

Next: What Is the Forex Market?

I’ve studied and dabbled in the Forex Market for several years. I cautiously began live trading approximately two months ago. My trading has shown a profit, and with the economy so poor, I wanted to help others by making Forex trading easier to understand. I hope to give everyone a taste of what potential for profit can be found in the Forex market.