"Forex" stands for foreign exchange; it's also known as FX. In a forex trade, you buy one currency while simultaneously selling another - that is, you're exchanging the sold currency for the one you're buying. The foreign exchange market is an over-the-counter market.
Currencies trade in pairs, like the Euro-US Dollar (EUR/USD) or US Dollar / Japanese Yen (USD/JPY). Unlike stocks or futures, there's no centralized exchange for forex. All transactions happen via phone or electronic network.

Understanding Forex Quotes

Reading a foreign exchange quote is simple if you remember two things:

1. The first currency listed is the base currency
2. The value of the base currency is always 1.

As the centerpiece of the forex market, the US dollar is usually considered the base currency for quotes. When the base currency is USD, think of the quote as telling you what a US dollar is worth in that other currency.
When USD is the base currency and the quote goes up, that means USD has strengthened in value and the other currency has weakened. Rising quotes mean a US dollar can now buy more of the other currency than before.

Majors not based on the US dollar

The three exceptions to this rule are the British pound (GBP), the Australian dollar (AUD) and the Euro (EUR). For these pairs, where USD is not the base currency, a rising quote means the US dollar is weakening and buys less of the other currency than before.
In other words, if a currency quote goes higher, the base currency is getting stronger. A lower quote means the base currency is weakening.

Cross currencies

Currency pairs that don't involve USD at all are called cross currencies, but the premise is the same.

Bids and asks

Just like other markets, forex quotes consist of two sides, the bid and the ask:
The BID is the price at which you can SELL base currency.
The ASK is the price at which you can BUY base currency.

What's a pip?

Forex prices are often so liquid, they're quoted in tiny increments called pips, or "percentage in point". A pip refers to the fourth decimal point out, or 1/100th of 1%.

For Japanese yen, pips refer to the second decimal point. This is the only exception among the major currencies.

Calculating Profit and Loss

Let's say that the current bid/ask for EUR/USD is 1.4616/19, meaning you can buy 1 euro for 1.4619 or sell 1 euro for 1.4616.
Suppose you decide that the Euro is undervalued against the US dollar. To execute this strategy, you would buy Euros (simultaneously selling dollars), and then wait for the exchange rate to rise.
So you make the trade: to buy 100,000 Euros you pay 146,190 dollars (100,000 x 1.4619). Remember, at 2% margin (50:1 leverage), your initial margin deposit would be approximately $2,923 for this trade.
As you expected, Euro strengthens to 1.4623/26. Now, to realize your profits, you sell 100,000 Euros at the current rate of 1.4623, and receive $146,230
You bought 100k Euros at 1.4619, paying $146,190. Then you sold 100k Euros at 1.4623, receiving $146,230. That's a difference of 4 pips, or in dollar terms ($146,190 - 146,230 = $40).
Total profit = US $40.

Total profit = US $40.
Now in the example, let's say that we once again buy EUR/USD when trading at 1.4616/19. You buy 100,000 Euros you pay 146,190 dollars (100,000 x 1.4619).
However, Euro weakens to 1.4611/14. Now, to minimize your loses to sell 100,000 Euros at 1.4611 and receive $146,110.
You bought 100k Euros at 1.4619, paying $146,190. You sold 100k Euros at 1.4611, receiving $146,110. That's a difference of 8 pips, or in dollar terms ($146,190 - $146,110 = $80)
Total loss = US $80.

Leverage & Margin - Trading on Margin

Leverage trading, or trading on margin, means you aren't required to put up the full value of the position. As a result, you can open a significantly larger position than you would be able to if you needed to fund your trade in full. Trading on leverage increases your potential for profit, but also increases your risks.

Forex trading offers leverage up to 50:1. This means that for every $1 in your account, you can trade $50 worth of a position.

What is Technical Analysis?

Technical analysis attempts to forecast future price movements by examining past market data.
Most traders use technical analysis to get a "big picture" on an investment's price history. Even fundamental traders will glance at a chart to see if they're buying at a fair price, selling at a cyclical top or entering a choppy, sideways market.

Using Technical Indicators

Price charts help traders identify trade-able market trends - while technical indicators help them judge a trend's strength and sustainability.
If an indicator suggests a reversal, confirm the shift before you act. That might mean waiting for another period to confirm the same indicator's signal, or checking out another indicator. Patience will help you read the signals accurately and respond accordingly.

Using Indicators

You've probably heard the expression "the trend is your friend" - but what does it mean? If your trend takes a sudden counter-move and your trailing stop activates at a loss, it's natural to ask yourself: how can you be sure the next trend will be more friendly?