FAQ (Forex for Beginners)

Forex Beginners

Forex Trading FAQ

🎌 FOREX BASICS FOR BEGINNERS

If you're not very familiar with Forex trading, you likely have many questions before getting started. Here are some answers...

What is Forex Trading?

Forex trading is the process of buying and selling currencies in the global Foreign Exchange Market (Forex). In the Forex market, currencies are traded in pairs, such as GBP/USD

Who Trades in the Forex Market?

Various types of participants trade in the Forex market, ranging from large institutional players to individual retail traders:

Commercial Banks
Central Banks and Governments
Institutional Investors (Hedge Funds etc)
Forex Brokers (ECN/STP and Market Makers)
Retail Traders and Currency speculators
International Trade Companies and other Corporations
World Tourists and Travelers

What is a Forex Currency?

A currency is a financial asset traded in the global Forex market. There are seven major Forex currencies: EUR (euro), USD (U.S. dollar), JPY (Japanese yen), GBP (British pound), AUD (Australian dollar), CAD (Canadian dollar), and CHF (Swiss franc).

What is a Currency Pair?

A currency pair is a quotation between two Forex currencies (e.g., EUR/USD). The first currency in the pair (EUR in this example) is called the base currency, while the second currency (USD) is known as the quote currency.

What are the Majors Currency Pairs?

The Majors are the most traded currency pairs in the global Forex market. There are six Major pairs: EUR/USD, GBP/USD, USD/JPY, AUD/USD, USD/CAD, and USD/CHF. Together, these pairs account for 85% of the global Forex market, offering traders the highest liquidity and, therefore, more favorable trading spreads.

What is the Bid/Ask Price?

Forex currency pairs are quoted using two prices: the bid price and the ask price. The bid is the price at which a Forex broker is willing to buy the base currency. The ask is the price at which the broker is willing to sell the base currency.

What is the Forex Trading Spread?

The Forex spread is the difference between the bid price and the ask price, expressed in pips. For example, if a broker is paying an actual price of 1.2100 for EUR/USD, they may offer clients a buy price of 1.2101 and a sell price of 1.2099. The difference between these two prices is known as the Forex trading spread.

Is the Trading Spread the Only Way a Forex Broker Makes a Profit?

Charging a spread is one way a Forex broker earns a profit. Brokers may also profit by charging commissions on trading volume, as well as maintenance or withdrawal fees. Some brokers only charge a trading spread, with no additional commissions. Here's how it works:

Dealing Desk Brokers (DD): High spreads, high order slippage, no trading commissions
ECN/STP Brokers (NDD): Tight spreads, no order slippage, trading commissions

What is Forex Margin?
When opening a Forex trading account, a broker requires clients to deposit a certain amount as insurance against potential losses. This deposit represents the initial investment and is known as margin.

What is Trading Leverage?

Trading leverage is the ratio between the value of a trading position and the margin (initial investment) required to open that position. In Forex trading, leverage typically ranges from 1:50 to 1:500.

In UK trading leverage is also called gearing and in Australia is also called solvency
Example: How leverage and margin work in Forex.

AMOUNT TRADED	MARGIN (INITIAL INVESTMENT)	LEVERAGE
1 mil USD	1 mil USD	1:1
1 mil USD	100,000 USD	10:1
1 mil USD	10,000 USD	100:1

What is a Lot?

A lot is the smallest trade size of a currency that you can buy or sell in the Forex market. A standard lot size equals 100,000 units of the base currency. For example, in USD-based pairs, one lot represents $100,000. This means that regardless of the leverage ratio used, the minimum trade size is $100,000.

There are three main types of lot sizes:

(1) Standard lot = 100,000 units

(2) Mini lot = 10,000 units

(3) Micro lot = 1,000 units

Each lot size typically corresponds to a different type of Forex account. Micro accounts (usually funded with less than $1,000) use micro lot sizes, while professional accounts typically trade using standard lot sizes.

What is a Pip?

A pip is the smallest amount by which the value of a Forex currency pair can change. For example, if a currency pair (e.g., EUR/USD) moves from 1.3000 to 1.3001, the movement is equal to 1 pip.

How Can I Calculate My Trading Profit Using Gained Pips?

In this example, a professional trader is using a standard-lot account and pays only the spread—no commissions—to the Forex broker. The trader has closed a $100,000 position (e.g., EUR/USD) at 1.3000, gaining 10 pips. In this case, the profit is $76.90, calculated as follows:

Example: How pips are converted into profits/losses

Trade size: 1 standard lot = 100,000 units
Pip value for EUR/USD (per standard lot): approximately $10
10 pips × $10 = $100 gross profit
After accounting for the spread (e.g., 2.31 pips × $10 = $23.10),
Net profit = $100 − $23.10 = $76.90

TRADING POSITION	PRICE AT CLOSE	PIPS GAINED
100,000 USD	EUR/USD at 1.3000	10 pips
Number of USD per Pip = 100,000 USD x 0.0001 (value of 1 pip) = 10
Value Per Pip = 10 / 1.3000 = 7.69 USD Per Pip
Actual Profit = 7.69 USD Per Pip x 10 Pips = 76.9 USD

What is ECN Forex Trading?

ECN stands for Electronic Communication Network and represents an advanced method of trading in the Forex market. ECN trading acts as an electronic bridge connecting banks and other Tier-1 liquidity providers with smaller market participants. This bridge is facilitated by an ECN Forex broker, who charges trading commissions for providing this service.

What is a Forex Rebate?

A Forex rebate is a cashback program based on trading volumes. Traders who participate in a rebate plan receive small commissions for each trade they make. Although these commissions are small, they can add up significantly over time, helping traders save a substantial amount when trading in the Forex market.

What is OnlineForex.Biz?

OnlineForex.Biz is a financial website that offers traders essential information about Forex trading and Forex brokers. It also serves as an Introducing Broker for top Forex brokers worldwide. We partner with many Forex brokers and act as an intermediary to help traders secure the best deals when opening new trading accounts. Our role is not only to provide traders with the best trading options (such as rebates and bonuses) but also to negotiate with Forex brokers on behalf of our traders. This service is completely free for traders, as we are compensated solely by Forex brokers, never by traders.

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