Course Content
What Is Forex Trading?
Forex is the world's largest market by trading volume and liquidity. Brokers, businesses, governments, and other economic agents trade currencies and forex derivatives to enable international commerce. Traders also use the market for speculative reasons. There are various arbitrage opportunities to be found with exchange rates and interest rates, making the market a popular one to trade in large volume or on leverage. The forex market consists of fiat currency pairs and their relative market prices. These pairs are typically bought and sold by the lot. A standard lot contains 100,000 units of the pair's base currency, but other smaller sizes are available, ranging down to 100 units. Traders commonly use leverage to increase the amounts they can invest with their capital. You can also offset risk by using forwards and swaps to trade a currency pair for a specific price in the future. Combining these two instruments with other trading strategies and products creates a variety of investment opportunities for forex traders.
What Is Forex Trading?
About Lesson

One of the forex market’s unique traits is its relatively small profit margins. To improve your gains, you’ll need to increase the volume you’re trading. Banks can do this fairly easily, but individuals may not have access to enough capital and can instead use leverage.

Leverage lets you borrow money from a broker with a relatively small collateral. Brokers display leverage amounts as a multiplication of the capital provided, for example, 10x or 20x being equal to 10 times or 20 times your money. $10,000 leveraged 10x would give you $100,000 to trade.
To borrow this money, traders maintain a margin amount that a broker uses to cover possible losses. A 10% margin is 10x, a 5% margin is 20x, and a 1% is 100x. Through leveraging, you experience the full losses or gains of an investment based on the total leveraged amount. In other words, leverage amplifies your profit and losses.

Let’s take a look at a EUR/USD example. If you wanted to purchase one lot of this pair (€100,000), you would need roughly $120,000 at the current rate. If you’re a small trader without access to these funds, you might consider getting 50x leverage (2% margin). In this case, you only need to provide $2,400 to access $120,000 in the currency market.

If the pair goes down by 240 pips ($2,400), your position will be closed, and your account will be liquidated (you lose all your funds). When leveraged, small movements in the price can lead to sudden, large changes in your profits or losses. Most brokers will allow you to increase the margin on your account and top it up as needed.