Details you need to know about forex

Before you get started in Forex trading there are a few details you need to know about Forex.

"Forex" is short for foreign exchange. In trading on the foreign exchange there are always two currencies involved. The combination of the two currencies is called a "currency pair" or "pair" for short. For instance, one of the most heavily traded currency pairs is the EURUSD, that is a symbol for the euro dollar -- US dollar. The quotation for currency pairs displays the relative value of one currency against the other. If the quotation for EURUSD is 1.3800 basically means that one euro dollar is being exchanged for 1.3800 US dollars. Another important fact to note is that the primary currency which is the first currency in the Forex symbols such as EURUSD, is also referred to as the base currency.

Forex is traded in contracts. One standard EURUSD contract will consist of 100,000 units of the base currency of the EUR.

Unlike the simple buying of stocks, trading in Forex is done on margin. In margin trading you deposit a certain amount in your Forex margin account. In a margin account the trader can control a contract worth as much as 100 times their initial deposit. This gives Forex traders and an incredible amount of leverage. The advantage of leverage is that a small move in your direction can translate into a relatively large sum in your Forex trading account. Quite naturally, on the flip side of things if the market happens to move against you then it is obvious that leverage will work against you. This is why the profit potential in risk of leverage are often referred to as a "double-edged sword".

With the enormous leverage possible in Forex trading it should come as no surprise that controlling your risk is of paramount importance. When used with proper risk control leverage can literally explode your equity to the upside. Leverage is one of the primary reasons that so many people are attracted to the incredible profit potential in Forex trading.

One of the best things you can do to increase your chances of success in Forex trading is to learn to trade Forex. You've probably heard the horror stories of people who have lost all the money in their trading accounts. While this can happen to anyone it happens much more frequently to those traders who are either unprepared or underprepared. So don't make the same mistake as many beginning traders have made and ignore the importance of preparation in order to trade successfully.