Forex Basics: Key Concepts & Terms

Navigating Forex: Understanding the Key Concepts and Terminologies


Forex, which is short for foreign exchange, is when different countries trade money with each other. It’s the biggest and most popular money market in the world, with lots of people buying and selling currencies every day. Learning about forex can be hard for beginners because it has some complicated things and special words. In this article, we will talk about the important ideas and words you need to know to understand and do well in forex.

Key Concepts

1. Currency Pairs

In forex, money is traded in pairs. Each pair has two currencies: one that you are buying or selling, and another that you use to buy or sell it. For example, in the “EUR/USD” pair, the euro (EUR) is the main currency, and the U.S. dollar (USD) is the other currency.

2. Bid and Ask Prices

When you trade forex, you will see two prices for each pair: the price you can sell for and the price you can buy for. The difference between these prices is called the “spread,” and it’s how the broker makes money.

3. Lots and Leverage

Forex trading is usually done in “lots,” which are big groups of money. There are different sizes of lots: standard (biggest), mini (medium), and micro (smallest). Leverage is when you use a small amount of money to control a big amount. It’s like having a superpower in trading.

4. Pips and Pipettes

Pips are the tiny pieces we use to measure money changes in forex. For most pairs, one pip is the fourth number after the dot. For example, if the price goes from 1.2500 to 1.2505, it went up by 5 pips. Some pairs have an extra tenth of a pip called a pipette.

5. Long and Short Positions

If you think a pair will go up, you can buy it and wait for it to go higher. This is called a “long” position. If you think a pair will go down, you can sell it and hope to buy it back at a lower price. This is called a “short” position.


1. Margin

Margin is a small amount of money you need to have to trade forex. It’s like a deposit to make sure you can pay if you lose money.

2. Stop-Loss Order

A stop-loss order is when you tell the broker to close your trade if the price goes too low. This helps you limit how much money you can lose.

3. Take-Profit Order

A take-profit order is when you tell the broker to close your trade if the price goes high enough. This helps you lock in your profit.

4. Market Order

A market order is when you tell the broker to buy or sell right now at the best price available.

5. Candlestick Chart

A candlestick chart is a special drawing that shows the price of a pair over time. It helps you see if the price is going up or down and decide when to trade.


1. Is forex trading risky?

Yes, forex trading is risky because prices can change a lot. It’s important to learn how to manage risks and be careful with your money.

2. Can I start forex trading with a small amount of money?

Yes, you can start with a small amount of money because of leverage. But remember, you should only risk money that you can afford to lose.

3. How can I learn more about forex trading?

To learn more about forex, you can take online classes, read books, follow good websites, and practice with demo accounts from brokers.

4. Are there any time restrictions for forex trading?

Forex trading is open 24 hours a day, five days a week. It starts on Sunday evening and ends on Friday evening.

5. Do I need a broker to trade forex?

Yes, you need a broker to trade forex. They help you access the market and make sure everything is safe and fair.


1. Investopedia. (n.d.). Forex. Retrieved from

2. (n.d.). How to Start Trading Forex. Retrieved from

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