Chapter 1: What is Forex, Really?

Let’s be real: Forex is not a get-rich-quick scheme. It’s a global currency market where smart people trade money against money. You buy one currency while selling another – with the goal of earning from price differences.

At its core, Forex is simple. But without the right knowledge and mindset, it can feel like a trap.

Let’s break it down — no hype, no fluff. Just the truth.

Forex (Foreign Exchange Market) is where the world’s currencies are traded. It’s the biggest financial market on the planet — over $6 trillion traded daily. You’re not trading gold or oil. You’re trading money — like buying the Euro (EUR) and selling the U.S. Dollar (USD) at the same time. That’s a currency pair.

Forex is a Game of Pairs

Every trade in Forex involves two currencies:

• EUR/USD = You buy Euro, sell Dollar.

• USD/JPY = You buy Dollar, sell Japanese Yen.

When one currency goes up, the other goes down — that’s how profits (or losses) are made.

The Market Never Sleeps

Forex runs 24 hours a day, 5 days a week — from Monday in Sydney to Friday in New York.

Sessions include:

• Asia (Tokyo)

• Europe (London)

• US (New York)

Each session has its own personality — some fast and volatile, some calm.

Forex Basics You Need to Know

Let’s turn the jargon into real talk—with quick examples and formulas you can use.

Prices & Units

• Currency pair = BASE/QUOTE. Example: EUR/USD = 1.1000 means €1 costs $1.10.

• Pip / pipette = Smallest price step. Most FX pairs: 1 pip = 0.0001 (pipette = 0.1 pip).

• Lot size

  • Standard 1.00 = 100,000 units

  • Mini 0.10 = 10,000 units

  • Micro 0.01 = 1,000 units

  • 👉 Quick pip value (for USD-quoted pairs): 1.00 lot ≈ $10/pip, 0.10 ≈ $1/pip, 0.01 ≈ $0.10/pip.

• Spread = Ask − Bid (your built-in cost). Tighter = better.

• Commission = A fixed fee per trade (common on ECN/Raw accounts). Total cost = Spread + Commission.

• Slippage = Order filled at a different price due to fast moves/liquidity.

Account & Margin

• Balance = Cash in your account excluding open trades.

• Equity = Balance ± floating P/L (open trades).

• Used Margin = Collateral locked to keep current trades open.

• Free Margin = Equity − Used Margin (what’s left to open new trades).

• Margin Level = Equity ÷ Used Margin × 100%.

  • Higher is safer; if it falls too low, you’ll face protection actions below.

• Margin Call = Warning from the broker that your margin level is low.

• Stop-out Level = Threshold (often 30–50%) where the broker automatically closes positions to prevent deeper losses.

• Leverage = Borrowed buying power. 1:100 lets you control $10,000 with $100 margin.

  • Required margin (rough): Notional ÷ Leverage.

  • Example: 0.10 lot EURUSD = 10,000 notional. At 1:100 leverage → $100 margin required.

Orders & Risk Controls

• Market order = Enter now at current price.

• Limit order = Enter at a better price than now.

• Stop order = Enter once price passes a level.

• SL (Stop Loss) = Auto-close to cap loss at a price you set. Non-negotiable for discipline.

• TP (Take Profit) = Auto-close to lock in gains.

• R:R (Risk-to-Reward) = Target profit vs risk. Aim for ≥ 1:2 on average.

• Position size (quick rule):- Risk $ per trade = Account × %Risk (e.g., $2,000 × 1% = $20).- Position size (lots) ≈ Risk $ ÷ (Stop pips × pip value).

Costs & Overnight

• Swap (overnight financing) = Interest adjustment for holding after rollover time; can be positive or negative depending on rate differential & direction.

• Swap-Free (Islamic) = Accounts structured to avoid swaps; brokers may apply alternative admin fees. Check terms.

P/L & Performance

• P/L (Profit/Loss)

  • Floating/Unrealized = on open trades (affects Equity).

  • Realized = booked when a trade closes (affects Balance).

• Drawdown = Drop from an equity peak to a trough. Keep it controlled (<10–20% for most swing/day traders).

• Expectancy = (Win% × Avg Win) − (Loss% × Avg Loss). Positive expectancy + risk control = consistency.

Market Structure & Liquidity

• Liquidity Provider (LP) = Banks/prime brokers that fill orders. More liquidity → faster fills & tighter spreads.

• Execution models

  • ECN/STP: Orders routed to market/LPs; variable spreads + commissions.

  • Market Maker: Broker internalizes flow; often all-in spreads, sometimes wider but with stable fills.

• Sessions: Tokyo, London, New York. Best liquidity during London–NY overlap.

Quick Examples (plug-and-play)

• Pip value: 0.10 lot EURUSD ⇒ $1 per pip.

• Risk calc: $1,000 account, risk 1% = $10. With a 20-pip stop and $1/pip, max size ≈ 0.05 lot ($10 ÷ (20×$1) = 0.5 mini = 0.05).

• Margin check: 0.20 lot at 1:100 on EURUSD → notional $20,000 ⇒ $200 margin used. Keep Free Margin healthy.

Red-Flag Reminders

• High leverage without a plan = fast blow-ups.

• Tight stops in high volatility = frequent stop-outs.

• Always test on demo, then go small live, scale only after 3 solid months of discipline.

Why People Trade Forex?

• Accessibility — Start with as little as $50

• Flexibility — Trade anytime

• Leverage — Control big trades with small capital

• Opportunity — Trends, news events, and volatility

But the same reasons people are attracted to Forex are the same reasons they blow accounts if not careful.

Advanced Traders Know This

As you grow, you’ll hear terms like:

• Hedging = Holding opposite positions to manage risk

• Correlation = When two pairs move in sync (or opposite)

• Divergence = Price and indicator moving differently = possible reversal

• Order Blocks / Supply & Demand Zones = Institutional zones where price often reacts

• Slippage = When your order fills at a different price due to fast movement

Don’t worry — we’ll cover each concept in later chapters.

Trading Mindset: Know This First

• You’re not gambling — you’re building a skill

• Tools help, but YOU are the key

• There is no 100% win strategy — only smart risk control

Forex is simple in theory, but deep in practice. The goal? Master the basics, then layer your knowledge.

✅ From Our Heart:

We want you to grow from beginner to advanced — not by luck, but by logic.

You’ll learn what really matters:

• Clean setups

• Risk control

• Smart psychology

• Real rebates — real returns

  
  

“Master the market, and you master your money.”

Let’s go deeper — one chapter at a time.