EUR/USD
Euro vs. US Dollar
The most traded pair on earth and the deepest liquidity in FX, which usually means the tightest spreads you will see.
What is Forex?
Also called the foreign exchange market, spot FX, or just FX. It is the biggest and most liquid market in the world, and the mechanics are simpler than the jargon suggests.
The world’s biggest market.
Around $3 trillion is traded globally every day. No stock market anywhere comes close to that daily turnover.
The idea is straightforward: you exchange one country’s currency for another’s. Because you are always buying one and selling the other at the same time, currencies are quoted in pairs, the pound against the dollar is GBP/USD.
$3TTraded globally every day
24/5Open Sunday evening to Friday evening
OTCNo central exchange, bank to bank
4Pairs that carry most of the flow
The four most-traded pairs.
Some pairs are far busier than others. These four carry the bulk of daily volume and are known collectively as the Majors.
01
EUR/USD
Euro vs. US DollarThe most traded pair on earth and the deepest liquidity in FX, which usually means the tightest spreads you will see.
02
GBP/USD
British Pound vs. US DollarKnown as "Cable", after the transatlantic telegraph cable that once carried the rate. Moves fast and ranges wide.
03
USD/JPY
US Dollar vs. Japanese YenHighly sensitive to interest rate differentials and to flow during the Asian session.
04
USD/CHF
US Dollar vs. Swiss FrancThe franc is a traditional safe haven, so this pair often moves when markets are frightened rather than when data lands.
Open 24 hours a day, five days a week.
At almost any hour a financial centre is open somewhere. The market closes only over the weekend. Times are GMT; Lagos is GMT+1 and Accra is GMT.
| Region | Centre | Opens | Closes |
|---|---|---|---|
| Europe | London | 08:00 | 17:00 |
| Europe | Frankfurt | 07:00 | 16:00 |
| Americas | New York | 13:00 | 22:00 |
| Americas | Chicago | 14:00 | 23:00 |
| Asia | Tokyo | 00:00 | 09:00 |
| Asia | Hong Kong | 01:00 | 10:00 |
| Pacific | Sydney | 22:00 | 07:00 |
| Pacific | Wellington | 22:00 | 06:00 |
A homeless market.
Foreign exchange has no physical address. Markets like this are called over-the-counter: every trade is processed electronically between banks around the world, around the clock.
Because there is no exchange building, there is no single official price, which is why two brokers can quote you fractionally different rates at the same instant, and why liquidity thins out at the edges of the trading day.
What the pip!?
A pip is "percentage in point", the smallest standard increment in a quote, effectively the last decimal place.
Most pairs are quoted to four decimals, so on GBP/USD at 1.5696 one pip is 0.0001. Yen pairs are the common exception: USD/JPY at 123.45 is quoted to two decimals, so one pip is 0.01.
Standard lots and micro lots.
01
Standard lot
100,000 units of the base currencyOn EUR/USD that is €100,000. For a four-decimal pair, one pip on a standard lot is worth about 10 units of the counter currency, $10. Ten pips against you costs $100, which at current rates is roughly ₦148,000 or ₵1,220. Realistically this size needs an account of $25,000 or more to trade safely.
02
Micro lot
1,000 units of the base currencyA hundred times smaller. One pip is worth about $0.10, around ₦148 or ₵1.22. This is where you should start: the arithmetic is identical, only the scale changes, and the tuition is far cheaper.
How to read an FX quote.
Every pair has a base currency (the first) and a counter or quote currency (the second). When you buy the pair you are buying the base and selling the counter.
EUR/USD = 1.1200 means one euro costs $1.12. The dollar is the counter currency, which makes this a direct quote.
USD/JPY = 125.00 means one dollar costs ¥125. Here the dollar is the base, which makes it an indirect quote. The distinction matters when you calculate what a pip is worth in your account currency.
Every quote has two prices.
01
Bid
The lower of the twoThe price at which the other side is willing to buy the base currency from you. Click the bid when you want to sell.
02
Ask
The higher of the twoThe price at which the other side is willing to sell the base currency to you. Click the ask when you want to buy.
03
Spread
The gap between themThe difference between bid and ask, and the cost of entering. Every position opens fractionally underwater by exactly the spread. It widens around news releases and when liquidity thins.
Going long vs. going short.
01
Going long
You expect the base currency to strengthenBuy at the ask, and close later by selling at the bid. Profit is the distance the pair travels upward, multiplied by your position size.
02
Going short
You expect the base currency to weakenSell at the bid first, and close later by buying back at the ask. Nothing is borrowed and nothing is owned, the contract simply settles the difference.
Module 03
What is Forex?
Also called the foreign exchange market, spot FX, or just FX. It is the biggest and most liquid market in the world, and the mechanics are simpler than the jargon suggests.
The basics
The world’s biggest market.
Around $3 trillion is traded globally every day. No stock market anywhere comes close to that daily turnover.
The idea is straightforward: you exchange one country’s currency for another’s. Because you are always buying one and selling the other at the same time, currencies are quoted in pairs, the pound against the dollar is GBP/USD.
$3TTraded globally every day
24/5Open Sunday evening to Friday evening
OTCNo central exchange, bank to bank
4Pairs that carry most of the flow
The Majors
The four most-traded pairs.
Some pairs are far busier than others. These four carry the bulk of daily volume and are known collectively as the Majors.
GBP/USD
British Pound vs. US Dollar
Known as "Cable", after the transatlantic telegraph cable that once carried the rate. Moves fast and ranges wide.
USD/JPY
US Dollar vs. Japanese Yen
Highly sensitive to interest rate differentials and to flow during the Asian session.
USD/CHF
US Dollar vs. Swiss Franc
The franc is a traditional safe haven, so this pair often moves when markets are frightened rather than when data lands.
Sessions
Open 24 hours a day, five days a week.
At almost any hour a financial centre is open somewhere. The market closes only over the weekend. Times are GMT; Lagos is GMT+1 and Accra is GMT.
| Region | Centre | Opens | Closes |
|---|---|---|---|
| Europe | London | 08:00 | 17:00 |
| Europe | Frankfurt | 07:00 | 16:00 |
| Americas | New York | 13:00 | 22:00 |
| Americas | Chicago | 14:00 | 23:00 |
| Asia | Tokyo | 00:00 | 09:00 |
| Asia | Hong Kong | 01:00 | 10:00 |
| Pacific | Sydney | 22:00 | 07:00 |
| Pacific | Wellington | 22:00 | 06:00 |
How it trades
A homeless market.
Foreign exchange has no physical address. Markets like this are called over-the-counter: every trade is processed electronically between banks around the world, around the clock.
Because there is no exchange building, there is no single official price, which is why two brokers can quote you fractionally different rates at the same instant, and why liquidity thins out at the edges of the trading day.
Pips
What the pip!?
A pip is "percentage in point", the smallest standard increment in a quote, effectively the last decimal place.
Most pairs are quoted to four decimals, so on GBP/USD at 1.5696 one pip is 0.0001. Yen pairs are the common exception: USD/JPY at 123.45 is quoted to two decimals, so one pip is 0.01.
Lots
Standard lots and micro lots.
Standard lot
100,000 units of the base currency
On EUR/USD that is €100,000. For a four-decimal pair, one pip on a standard lot is worth about 10 units of the counter currency, $10. Ten pips against you costs $100, which at current rates is roughly ₦148,000 or ₵1,220. Realistically this size needs an account of $25,000 or more to trade safely.
Micro lot
1,000 units of the base currency
A hundred times smaller. One pip is worth about $0.10, around ₦148 or ₵1.22. This is where you should start: the arithmetic is identical, only the scale changes, and the tuition is far cheaper.
Reading a quote
How to read an FX quote.
Every pair has a base currency (the first) and a counter or quote currency (the second). When you buy the pair you are buying the base and selling the counter.
EUR/USD = 1.1200 means one euro costs $1.12. The dollar is the counter currency, which makes this a direct quote.
USD/JPY = 125.00 means one dollar costs ¥125. Here the dollar is the base, which makes it an indirect quote. The distinction matters when you calculate what a pip is worth in your account currency.
Bid, Ask & Spread
Every quote has two prices.
Bid
The lower of the two
The price at which the other side is willing to buy the base currency from you. Click the bid when you want to sell.
Ask
The higher of the two
The price at which the other side is willing to sell the base currency to you. Click the ask when you want to buy.
Spread
The gap between them
The difference between bid and ask, and the cost of entering. Every position opens fractionally underwater by exactly the spread. It widens around news releases and when liquidity thins.
Direction
Going long vs. going short.
Going long
You expect the base currency to strengthen
Buy at the ask, and close later by selling at the bid. Profit is the distance the pair travels upward, multiplied by your position size.
Going short
You expect the base currency to weaken
Sell at the bid first, and close later by buying back at the ask. Nothing is borrowed and nothing is owned, the contract simply settles the difference.