Understand Forex Basics

With the increasingly prevalent use of the internet, trading of foreign currency has never been more available to investors. The involvement of large international corporations, hedge funds and banks makes the foreign currency (Forex) market the most highly traded and most liquid market in the world. The Forex market is open 24 hours a day, 5 days a week, with in excess of $1.4 trillion dollars changing hands every day.
This enormous liquidity together with the availability of diverse currency pairs can result in a high level of turbulence on a daily basis. Forex markets are also affected by financial news releases which are reasonably frequent and can cause large swings in the price of a currency. These variations in price give traders a chance to make money. Forex markets offer traders the ability to make money in both rising and falling markets. With a large variety of instruments to trade and highly leveraged trading, it is possible to start trading Forex with very limited funds.
Nearly all of the instruments that are traded on the Forex market have a minimum trade size, calculated on the base currency, a common minimum trade size is 100,000 units, for this reason the use of leverage is vital for traders. Most forex brokers offer mini accounts, where traders are able to place trades with a minimum size of 10,000 units.
Currencies are priced in duos, with each trade resulting in the purchase of one currency and the sale of another. If the currency you are purchasing increases in price relative to the currency you are selling, you will make profit. The first currency in a pair is the base currency and the second is the counter currency.
Forex quotes have two prices, a bid and an ask price. The bid price is the value at which you can sell the base currency in exchange for the counter currency. The ask price is the value at which you can purchase the base currency in exchange for the counter currency. There is always a gap between the two prices, called the spread. The spread can be calculated by reviewing the last two numbers in the bid and ask prices, for example if the prices are 1.8967 / 1.8971, the spread is 4 pips, this means the trade would need to move in your favor by 4 pips for you to breakeven.