Forex trading offers leverage up to 200:1, This means that for every £1 in your account, you can trade £200 worth of a position.

FOREX.com: No debit balances, no margin calls

At FOREX.com, your risk is limited to funds on deposit. There are no margin calls in forex trading. You need to maintain sufficient funds on your account to keep your positions open, and you will not be able to open larger positions than can be supported by your account balance. If your account falls below the required level to maintain your position(s), we will automatically close out all positions to ensure that you can’t lose more money than you have in your account.

More leverage means more opportunity – and more risk

Trading using leverage offers significantly increased profit potential, but it is important to remember that it also means significantly increased risk. Your risks can be limited by monitoring your account, and by using stop losses to set the maximum loss you are prepared to take on any one position.

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.

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. In other words, a rising quote means that the US dollar can buy more of the other currency than before.

Majors not based on the US dollar

There are three exceptions when the US Dollar is not the base currency of a pair – these exceptions are the British pound (GBP), the Australian dollar (AUD) and the Euro (EUR).

For these pairs, the quote is based on the other currency, and a rising quote means that the other currency is strengthening, and the US dollar is weakening.

Cross currencies

Currency pairs that don’t involve USD at all are called cross currencies.

BID, ASK and the Spread

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.

The spread is the difference between the BID and the ASK, and represents the cost of trading. In forex, spreads are tighter than many other markets, making it cost effective to trade on relatively small price movements.

What’s a pip?

Forex prices are generally very liquid, and are usually quoted in very small 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.

• Foreign trade (5%). Companies buy and sell products in foreign countries, plus convert profits from foreign sales into domestic currency.
• Speculation for profit (95%).

Most traders focus on the biggest, most liquid currency pairs, known as «The Majors». These include US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar. In fact, more than 85% of daily forex trading happens in the major currency pairs.

Currencies trade in pairs, like the Euro-US Dollar (EUR/USD) or US Dollar / Japanese Yen (USD/JPY).

Forex trading is used to speculate on the relative strength of one currency against another. The foreign exchange market is an over-the-counter market, which means that it is a decentralised market with no central exchange.