Probability of earning on Forex is based on the fact that every national currency is a good, as well as wheat or sugar, and a medium of exchange, as gold or silver. As the world is changing so fast, economic conditions of every country (production, inflation, unemployment etc) are getting more and more dependant on each other, as a result, the rate of a currency changes against other currencies. This is the main reason of the process of rate fluctuations.

All currencies are traded in pairs and each is assigned with an abbreviation.
Table 1. Currency Abbreviations
Abbreviation Interpretation
EUR Euro
USD US Dollar
GBP British Pound
JPY Japanese Yen
CHF Swiss Franc
AUD Australian Dollar
CAD Canadian Dollar
NZD New Zealand Dollar
SEK Swedish Krona
DKK Danish Krone
NOK Norwegian Krone
SGD Singapore Dollar
ZAR South African Rand

Currency exchange rate is the rate at which currencies are exchanged one for another. For example, «EUR/USD exchange rate is 1.2505» means that one Euro is exchanged for 1.2505 US Dollars.

The exchange rate of any currency is usually given as the Bid price (left) and the Ask price (right). The Bid price represents what will be obtained in the quote currency (US Dollar in our example) when selling one unit of the base currency (Euro in our example). The Ask price represents what has to be paid in the quote currency (US Dollar in our example) to obtain one unit of the base currency (Euro in our example). The difference between the Bid and the Ask price is referred to as the spread.
Table 2. 1.0 lot size for different currency pairs
Currency pair↓ 1.0 lot size Necessary margin for 1 lot 1 pip size

EURUSD EUR 100,000 1000 EUR 0.0001
USDCHF USD 100,000 1000 USD 0.0001
GBPUSD GBP 100,000 1000 GBP 0.0001
USDJPY USD 100,000 1000 USD 0.01
AUDUSD AUD 100,000 1000 AUD 0.0001
USDCAD USD 100,000 1000 USD 0.0001
EURCHF EUR 100,000 1000 EUR 0.0001
EURJPY EUR 100,000 1000 EUR 0.01
EURGBP EUR 100,000 1000 EUR 0.0001
GBPJPY GBP 100,000 1000 GBP 0.01
GBPCHF GBP 100,000 1000 GBP 0.0001
EURCAD EUR 100,000 1000 EUR 0.0001
NZDUSD NZD 100,000 1000 NZD 0.0001
USDSEK USD 100,000 1000 USD 0.0001
USDDKK USD 100,000 1000 USD 0.0001
USDNOK USD 100,000 1000 USD 0.0001
USDSGD USD 100,000 1000 USD 0.0001
USDZAR USD 100,000 1000 USD 0.0001
CHFJPY CHF 100,000 1000 CHF 0.01

Let’s assume that exchange rate for EUR/USD is 1.2505/1.2509. You may have made market analysis and decide the EUR/USD rate is moving higher (at least to 1.2600). You buy 0.1 lot (minimum contract size) of EUR/USD at the 1.2509 (ask price). Table 1 will help you to define what the contract size is: i.e. 1.0 lot for EUR/USD is 100 000 EUR, then 0.1 lot (our contract size) is 10 000 EUR.

This means that you bought 10 000 EUR and sold 10 000×1.2509=12,509 USD. So, in order to make a deal you don’t have to sell total amount of 12.509 USD but 100 times less just $125.09. The rest sum of the money (in our example $12,383.91) is leveraged to you by a broker (a company you entered the contract with to enter the market).

Leverage is the term used to describe margin requirements: the ratio between the collateral and borrowed funds: 1:20, 1:40, 1:50, 1:100. Leverage 1:100 means then when you wish to open a new position, then you must have deposit 100 times less then the contract size.

So, you forecast that EUR/USD is moving higher and you buy 10.000 EUR and sell 12.509 USD. Assume you are right and EUR/USD reaches 1.2599/1.2603. You close the open position by the opposite one, in our example, you close short position (sell position) by long position (buy position), i.e. you sell 10.000 EUR (0.1 lot* 1.0 lot size for EUR/USD) and buy 12.599 USD:
Transaction EUR USD
Open a position — buy EUR and sell USD + 10,000 – 12,509
Close a position — sell EUR and buy USD – 10,000 + 12,599
Total: 0 + 90

You get a profit of 90 dollars. And you didn’t operate with 10.000 EUR ($12,509), but only $125. So, the profit is 90 pips. Pips or point is a minimal rate fluctuation. For EUR/USD 1 pips is 0.0001 of the price (see table 2). Our profit is 1.2599-1.2509=0.0090, i.e. 90 pips.

So, you invested $125 and take a profit of $90. The time period for this can take from 10 minutes to several days. But anyway to make profit of $90 for several hours isn’t a bad return at all. But be aware, that all this can work against you and magnify your losses. Only money management will help you to minimize the risks, moreover to reduce them to zero, and increase the return of your funds from 10% to 20-30% and higher per month.

One question is left: what is broker’s charge for the leverage he provides? If you open and close a position till 2:00 Moscow time, a broker provides the leverage for free. If you leave your position after 2:00 Moscow Time, he credits to your account or debits from you account a storage — charge for the overnight position. It can be both positive (credited to your account!) and negative (debited from your account). It depends on the interest rates in those counties which currencies you trade.

For example, ECB interest rate is 4.25%, FED interest rate is 3.5%. Assume, you have a short position on EUR/USD per 1.0 lot. You sell 100.000 EUR. This means you borrow them at 4,25% per annum. You sell euro and buy dollars, which can be deposited at 3.5% per annum. As a result, the costs are (4.25-3.5)% per annum or 937.5 dollars per year (if EUR/USD rate is 1.2500), or $2.57 per day. This means that your account will be debited on $2.57 everyday per one lot if you have a short position (selling position) on EUR/USD. And your account will be credited $2.57 everyday per one lot if you have a long position (buying position) on EUR/USD.

In practice the debited amount is a bit higher than 2.57%, and the credited amount is a bit lower than 2.57%. The difference goes to a broker as a payment for the rollover (see Contract Specification).

Incoming Forex terms:

• 1000usd deposit at 1:100 leverage what lot size to use

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Finally, Forex represents a market of interbank transactions, and under currency and interest rates fluctuations we should consider interbank foreign exchange market.

Large international banks, daily operation volumes of which reach 1 bln dollars, have the most important impact on the world exchange markets. These are such banks as Deutsche Bank, Barclays Bank, Union Bank of Switzerland, Citibank, Chase Manhattan Bank, Standard Chartered Bank and others. Large transaction volumes that may cause significant changes in quotations or currency prize are the most evident distinction of these banks. Large players are usually divided into bulls and bears. Bulls are the market participants who play for the currency prize increasing; bears are the market participants who play for the currency prize decreasing. The market is usually in balance between bulls and bears, and the difference in currency quotations usually fluctuates in quite a narrow range. Although when bulls or bears overpower, currency rates quotations fluctuate quite sharply and significantly.

Firms that realize foreign trade operations
Companies that take part in the international trading have a great demand on the foreign currency (with regard to importers) and offer of the foreign currency (with regard to exporters), and also deposit and attract free currency remains. As a rule, these organizations have no direct access to Forex and make conversional and deposit transactions via commercial banks.

Companies that realize depositing of foreign assets (Investment Funds, Money Market Funds, International Corporations)
These companies represent different international investment funds. They realize policy of diversifying management of assets portfolio, depositing funds in securities of governments and corporations of different countries. They are called just funds in slang of dealers. The most popular funds are «Quantum» of George Soros and Dean Witter.
Large international corporations also refer to this kind of firms. They realize foreign industrial investments: affiliates and joint enterprises foundation, such as Xerox, Nestle, General Motors, British Petroleum, etc.

Central banks
Currency regulation on the foreign market is the main duty of the central banks, particularly, prevention from national currency sharp bounces in order to avoid economical crises, support balance between exports and imports etc. Central banks have a direct influence on Forex. Their influence may be both: direct – currency intervention, and indirect – money funds and interest rates regulating. They can’t be referred to bulls or bears, as they may play both for rising and falling depending on concrete tasks they have currently. Central banks may act alone on the market to influence on the national currency, or they may act together with the other central banks to conduct the collective currency policy on the international market or for collective interventions.

The following banks have the greatest influence on the world currency market: the US Central bank — US Federal Reserve (FED), German Central bank — Deutsche Bundesbank and GB Central bank — Bank of England (Old Lady).

Foreign exchanges
In some countries with transition economy currency markets operate. They realize currency exchange for entities and formation of the market currency rate. The State usually regulates the exchange rate, making use of currency markets compactness.

Currency brokerage firms
Their function is to bring together a buyer and a seller of the foreign currency and to accomplish conversional or loan-depositary operation between them. Broker firms take broker commission in the form of percent from the transaction charge.

Physical bodies
Physical bodies make a great deal of noncommercial transactions as related to traveling abroad, wages, pension and earned income transfer, foreign exchange cash buying and selling. In 1986 due to margin introduction physical bodies got an opportunity to invest free cash on Forex to take profit.

The main volume (90-95%) on Forex is earned by the largest world commercial banks by making conversional transactions both in clients interests and by their own expense. Nevertheless, advance in computer technologies let to find field of application for funds of private and retail investors. More and more brokerage firms and banks give access for private investors to Forex via Internet.

Incoming Forex terms:

• fx participants

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Forex trading is a non-delivery trade: foreign exchange market are not physically, but to be more precise, there are foreign exchange contracts to be agreed and implemented.
Both parties to such contracts (the investor and the trading platform) undertake to fulfill their obligations: one party agrees to sell a certain preset amount, and the other party agrees to purchase that quantity.

That includes a deal with Forex?

Forex is an agreement with a contract between an investor and operator of Market. The contract is a commitment to the following components

1. A pair of currencies (the currency for the currency by buying and selling)
2. The equivalent of capital
3. Costs for pre-transaction

As a benefit of Forex?

Obviously, buy low, sell high! Imagine that the cost of change for EUR / USD (euro to U.S. dollar) at 1 pm. is 1.1999. If you bought 1,000 euros at that time, you would have paid 1.199.00 U.S. dollars. But if one hours later, the cost of change is 1.2222, the value of the euro has risen relative to U.S. dollar. You can now sell the 1000 euros and receive U.S. dollars 1.222.00. Then you would be 23.00 U.S. dollars more than when the transaction started an hour ago.

What is “Leverage” (leverage) and because we need it?

The proportion of investments at present value is called “leverage” (leverage). Using $ 100 to buy a Forex contract with a value of $ 10,000 this “leverage” a ratio of 1:100. Your investment of $ 100 is all that you may risk, but could earn more.

As there is risk in trading Forex?

As mentioned above you can never lose more than the amount invested, but like everything that relates to the risks they involve money, we recommend that you never risk more than you can afford to lose.
With eToro, you can open a live account from a very small amount like $ 50, the minimum trade is $ 25 and we offer a variety of leveraged transactions of up to 400:1

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To put it in a simple, Forex is the simultaneous buying of one currency and selling another. The currencies are traded at world of floating exchange rates and are always traded in pairs, for example USD / YEN EURO / USD.
The Forex market reached its current form in 1971, after it ceased to operate currency exchanges at fixed rate. This market operates 24 hours, five days a week.

The Forex market is a market for buying and selling currency and involves large organizations, such as commercial companies and central banks and international commercial and smaller players such as agents and brokers individual brokers. The currency market does not operate from a fixed location, although there are some very important around the world in cities like New York, London, Tokyo and Frankfurt, but this is more of a market that operates on the Internet or by telephone.
Before the advent of the Internet, only corporations and wealthy individuals could invest in foreign currency in the forex market through the private foreign exchange from banks. These systems require a minimum $ 1 million to open an account. Today, thanks to advances in online technology, investors who own just a few thousand dollars can have access to the forex market 24 hours a day.

The purchase and sale of foreign currency is a key element to support global trade and as the major currencies are moving against each other, there are opportunities and continue to make money with money transactions. And while the major players in the market buying and selling agreements million dollars, the smaller players also have a place in this market.
Against this background, you will see that almost every person has the opportunity to enter this market and, with a little money to spend and time to learn how to operate in the exchange markets, it is possible to enjoy a very good income by trading currencies online.

The Foreign Exchange Market Forex is a technician and takes time to learn the basic principles and develop the skills necessary to use some of the tools available such as the so-called technical analysis and fundamental. However, it is not necessary to be an expert to profit from these operations. With time and effort is fairly simple to acquire sufficient understanding of the system to make money trading currencies online.
For many people, the Internet is a starting point to learn the foreign exchange market. We hope that this paper has served to arouse their curiosity and make available the opportunity to learn to operate without risking your Forex investments.

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Running 24 hours a day
The Forex market is a steady market available 24 hours a day, open on Sundays at 14:00 hours from New York until Friday at 16:00 hours from New York. By having the capability to operate during the hours of the U.S. market, Asia and Europe, operators have the advantage of immediately reacting to news of the market and determine their own hours of operation.

Increased liquidity
With a daily trading volume 50 times greater than the volume traded on the New York Stock Exchange, there are brokers and dealers (agents) to buy or sell currencies in the forex markets. The liquidity of foreign exchange market, especially the market for major currencies, helps ensure price stability. Traders can almost always open or close a position at a fair market price. This represents a major advantage of the Forex market.

100:1 leverage in the forex market
The online forex market dealers offer a 100 to 1 leverage, which far exceeds typical 2:1 margin offered by brokers and beyond 15:1 futures market. With a leverage of 100:1, the operators a margin deposit of $ 1000 for a position of $ 100.0000, or 1%.

Transaction costs low
It is much more efficient in operating costs based on the foreign exchange market in terms of commissions and operating expenses in the purchase and sale of currencies.

Equal potential for profits in both bull markets and falling
In all open forex position, an investor has a long position in one currency and short another. A short position is one in which the trader sells currency before it will depreciate. In this case, the investor benefits from a fall in market price.

The ability to sell currencies without any restrictions is another distinct advantage over the stock market.

Basic Principles on the Purchase and Sale of Foreign Currency
Any purchase involves the sale of foreign currency to buy one currency and sell another simultaneously. Currency quotes are presented as rates, ie, the value of a currency relative to another. Supply and relative demand for both currencies will determine the value of the exchange rate.

When an operator conducts a foreign exchange transaction, you want the value of the purchased currency appreciates in value against the currency sold. Its ability to determine how an exchange rate change, determine its gain or loss in an operation. Let’s make an example with a currency trading system obtained by the purchase and sale of foreign exchange (forex).

Taking an example of tender price and the current demand for EUR / USD is 1.0126, ie you can buy 1 euro for 1.0126 U.S. dollars.
Imagine that you think is the euro depreciated against the dollar. To realize this strategy, you buy Euros (simultaneously sold dollars) and then waits until the exchange rate rise.

Then performs the operation: 100.000 EUROS purchase (1 lot) and sell $ 101,260.
As you expected, EUR / USD 1.0236 climbs. How to buy Euros and sell dollars in its previous operation, must now sell Euros for Dollars for gain. Now you can sell 1 euro for 1.0236 U.S. dollars. When you sell 100,000 Euros at the current rate of EUR / USD 1.0236, will receive U.S. $ 102.360.

As you originally sold (paid) 101.260 U.S. $, your gain is $ 1100.
Total profit = U.S. $ 1100.00

Which currency pair should I start trading?
The brokers offer us the possibility to operate with a lot of currency pairs, the range is often so broad that sometimes we doubt what is the best pair to start operating.
The pair you choose will depend on your model of investment and expertise.
The most widely used currency pairs are known in English “The Majors” Pairs EUR / USD, USD / JPY, USD / CHF and GBP / USD

To choose a currency pair to operate to take into account the following requirements:
What is the currency with which it has more information?
Currencies like the dollar, Euro, Pound or the Yen will have more information than others.

There is some opportunity in the market?
Follow the market in search of opportunities in this.
The pair I am going to operate is related to gold or oil?
Some currencies like the dollar affected the price of oil and vice versa so often have a strong correlation.

Operate events?
Many operators want to operate at times close to the events which at times which tends to increase the volatility of the market, but offer many possibilities.

Volatility that I am willing to take?
Some currency pairs offered in their prices more volatile than others.

Spread it has the pair?
The commission charged by the broker that we often vary the torque to operate
That moves the markets? forex.

The relative prices of currencies, as in any market, fluctuate according to the laws of supply and demand. They also are exposed to a number of macroeconomic variables, and especially monetary policies of the countries involved.

Among the major variables affecting the market are interest rates, defined as those that yield more value than money on his (or anyone compares). The balance of trade of countries and their corresponding cash flow. Your tax situation, productivity, employment levels etc..

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