Forex Currency is always traded in pairs, one pair being traded against another. The pairs are set in a certain format which is consistent throughout the 100’s of pairs that are available and each currency has its own individual symbol. The first currency in the pair is the base currency and will always represent a single denomination of that currency.

To make this more clear we are going to look at the GBP/USD. GBP is the symbol for Great British Pounds and the USD is the symbol for the United States Dollar. As you can see the GBP is the first in the currency pair so this will be represented as 1 single Pound and will not change. The USD however, is the second currency in the pair and therefore the fluctuating currency.

Whenever you see the GBP/USD represented as a price it is the price in dollars that the GBP is worth. For example, if the price is 16200 it is telling you that 1 GBP is worth 16200 USD or $1.6200. The last two decimal places are known as pips and are important denominations to forex traders, but that is a topic for another article.

The forex currency pairs are broken down into sections so it is easy for people to find the most popular. The 3 different bands of currency pairs are Major, Minor and exotic. The major pairs will be currencies that you are more familiar with such as the Australian Dollar, Euro, United States Dollar, Swiss Franc, Japanese Yen, Canadian Dollar and Great British Pounds. These currencies are represented respectively as AUD, EUR, USD, CHF, JPY, CAD and GBP which make up the basis of the major currency trading pairs.

As discussed above these currencies are always paired up against one another in a set format and in the major class always include the USD as one of the pair. Although the symbols can be paired up against one another they would fall into the class of minor unless, being traded against the USD.

One of the currency pairs that is disputed to be major or minor and the only one that does not include the USD is the EUR/GBP. You will find some traders arguing that it is a major currency pair but you will find most spread betting platforms class it as a minor currency pairs.

The most traded of the 6 major currency pairs are the GBP/USD and the EUR/USD. Because of the volume of traders buying and selling this currency it also makes them the most profitable and the most volatile. It is important to receive proper training before taking on the task of forex trading.

This is how to calculate your forex profit or how it is calculated by your forex broker.
Before we can calculate our forex profit, we need to know what our forex pips,pip value and lots are.

What is a pip?
In forex, a percentage in point or price interest point(pip) is a unit of change in an exchange rate of a currency pair. If the GBP/USD moves from 1.2204 to 1.2205 this is ONE PIP. A pip is the last decimal of a quotation. The pip is how you measure your profit or loss.

As each currency has its own value of pip, example in USD/JPY rate at 119.70(notice this currency pair only goes to two decimal
places, most of the other currencies have four decimal places)
In the case of USD/JPY, 1 pip would be .01
Therefore,
USD/JPY:
119.70
.01 divided by exchange rate = pip value
.01 / 119.70 = 0.0000835
This looks like a very long number but later we will discuss lot size.

USD/CHF:
1.5250
.0001 divided by exchange rate = pip value
.0001 / 1.5250 = 0.0000655
In the case where the US Dollar is not quoted first and we want to get the US Dollar value, we have to add one more step.

EUR/USD:
1.2200
.0001 divided by exchange rate = pip value
so
.0001 / 1.2200 = EUR 0.00008196
but we need to get back to US dollars so we add another calculation which is
EUR x Exchange rate
So
0.00008196 x 1.2200 = 0.00009999
When rounded up it would be 0.0001

Now, you know how your forex pip and pip value are calculated, now lets us move to how calculate your forex lots.

What is forex lot?
Spot Forex is traded in lots. The standard size for a lot is $100,000. There is also a mini lot size and that is $10,000. As you already know, currencies are measured in pips, which is the smallest increment of that currency. To take advantage of these tiny increments,you need to trade large amounts of a particular currency in order to see any significant
profit or loss.
Let’s assume we will be using a $100,000 lot size. We will now recalculate some examples to see how it affects the pip value.
USD/JPY at an exchange rate of 119.80
(.01 / 119.70) x $100,000 = $8.35 per pip
USD/CHF at an exchange rate of 1.4556
(.0001 / 1.4556) x $100,000 = $6.87 per pip
In cases where the US Dollar is not quoted first, the formula is slightly different.
EUR/USD at an exchange rate of 1.1930
(.0001 / 1.1930) X EUR 100,000 = EUR 8.38 x 1.1930 = $9.99734 rounded up will be $10 per pip
GBP/USD at an exchange rate or 1.8040
(.0001 / 1.8040) x GBP 100,000 = 5.54 x 1.8040 = 9.99416 rounded up will be $10 per pip.
Your forex broker may have a different convention for calculating pip value relative to lot size but whichever way they do it, they’ll be able to tell you what the pip value is for the currency you are trading is at the particular time. As the market moves, so will the pip value depending on what currency you are currently trading.
Now, you know how your forex trading lot is calculated, let us calculate our forex profit now.

Calculation of forex profit.

Let’s buy US dollars and Sell Swiss Francs.
The rate you are quoted is 1.4525 / 1.4530. Because you are buying US you will be working on the 1.4530, the rate at which traders are prepared to sell.
So you buy 1 lot of $100,000 at 1.4530.
A few hours later, the price moves to 1.4550 and you decide to close your trade.
The new quote for USD/CHF is 1.4550 / 14555. Since you’re closing your trade and you initially bought to enter the trade, you now sell in order to close the trade so you must take the 1.4550 price. The price traders are prepared to buy at.
The difference between 1.4530 and 1.4550 is .0020 or 20 pips.
Using our formula from before, we now have (.0001/1.4550) x $100,000 -= $6.87 per pip x 20 pips = $137.40
Remember, when you enter or exit a trade, you are subject to the spread in the bid/offer quote.
When you buy a currency you will use the offer price and when you sell you will use the bid price.
So when you buy a currency, you pay the spread as you enter the trade but not as you exit.
And when you sell a currency you don’t pay the spread when you enter but only when you exit.

BASE CURRENCY;A base currency is the first currency quoted in a currency pair on forex. It is also typical considered the domestic currency or accounting currency for accounting purposes, a firm may use the base currency to represent all profit and losses—investopedia.

COUNTER CURRENCY;In this currency pair USD/EUR the euro(EUR) is considered the counter currency. In pair, units of counter currency are per unit of base currency.

MARGIN CALL;If the market moves against a trader resulting in losses such that the trader lacks a sufficient amount of margin, there is an automatic “margin call”. The Forex dealer closes the trader’s positions and limits the losses for the client because this stops the account from turninig into a negative balance.

COMMISSION/FEES;This is a certain amount that a trader pays for every trade that is placed with a forex broker. These cost vary from broker to broker, but they are usually a relatively low amount. These are usually the only cost that you are likely to incur.


ROLLOVER Charges;Rollover charges are determined by the difference between the interest rate of the country of the base currency and the interest rates of the other country.
The greater the interest rate differential between the two currencies in the currency pair, the greater the rollover charge will be. For example, when trading GBP/USD, if the British pound has the greater interest differential with the U.S.
dollar, then the rollover charge for holding British pound positions would be the most expensive. On the other hand, if the Swiss Franc were to have the smallest interest differential to the U.S. dollar, then overnight charges for USD/CHF would be the least expensive of the currency pairs.

CROSS CURRENCY;In forex, when a currency quote is given without the U.S. dollar as one of its components, this is called a cross currency.The most common cross currency pairs are the EUR/GBP, EUR/CHF, and EUR/JPY. These currency pairs expand the trading possibilities in forex market, but it is important to note that they don’t have as much of a following as pairs that include the U.S. dollar, which also are called the majors.

SPREAD;The spread is the amount of pips between the bidding price and asking price.
The spread is what forex brokers use to make money on every forex trade placed through their network. For example, the forex broker may be paying a price of 1.3700 for buying or selling. The broker will then allow you to buy the currency for 1.3701 or sell it for 1.3699

PIPS;A pip is the most common increment in a currency value. It is the smallest price change that any currency can make. Most pips are equal to a 0.0001 price change. For instance, the EUR/USD currency pair might change from 1.4030 to 1.4031-this is a one-pip movement.
However, where a currency has a low unit value, the price is only quoted to 2 decimal places, not 4, in this case, a pip is 0.01 rather than 0.0001. The example is the Japanese yen-if the USD/JPY currency pair increases from 104.22 to 104.23, this is a one-pip change.

LOTS;A lot is simply the bundle of units in trade.The standard lot is the equivalent to 100,000 units of the quote currency in forex trade.
A standard lot is similar to trade size. It is one of the three commonly known lot sizes;the other are mini-lot and micro-lot.
Furthermore, A standard lot represents 100,000 units of any currency, whereas a mini-lot represents 10,000 units and micro-lot represents 1,000 units of any currency.

LEVERAGE;Leverage is the ratio of the amount capital used in a transaction to the required security
deposit (margin). It is the ability to control large dollar amounts of a security with a
relatively small amount of capital. Leveraging varies dramatically with different brokers,
ranging from 2:1 to 400:1.
Margin + Leverage = Possible Deadly Combination
Trading currencies on margin lets you increase your buying power. Meaning that if you
have $5,000 cash in a margin account that allows 100:1 leverage, you could purchase up
to $500,000 worth of currency because you only have to post one percent of the purchase
price as collateral. Another way of saying this is that you have $500,000 in buying power.
With more buying power, you can increase your total return on investment with less cash
outlay. But be careful, trading on margin magnifies your profits AND losses.

BID;The bid price is the price at which the buyer or buyers are willing to pay for a security.
For example, in the quote GBP/USD 1.8812/15, the bid price is 1.8812. This means you
sell one British pound for 1.8812 U.S. dollars.

ASK;The ask price represent the minimum price that a seller or sellers are willing to receive for the security.
For example, in the quote EUR/USD 1.2812/15, the ask price is 1.2815. This means you can buy one Euro for 1.2315 U.S. dollars. The ask price is also called the offer price.

ORDER;The term “order” refers to how you will enter or exit a trade.

There are three main types of forex trading that a potential forex trader will use in trading forex online. Although, forex brokers offer other types of account such as managed or investment forex account, but when it comes to you trading forex online, you need to use these three types of forex accounts, they are as follows:

i.                   Standard or macro forex account

ii.                 Mini forex account

iii.              Micro forex account

1.     Standard or Macro Forex AccountThe standard account is the most widely used forex trading account. These types of forex account afford you access to standard trading lots of currency, each of which is with $100,000. This does not mean that you have to put down $100,000 of trading capital in your forex account for you to trade. The rules of leverage and margin (eg 100:1or 200:1 in forex) allow you to trade in forex a standard lot which might be as little as $1,000 or  $500.This type of online forex trading account has its own pros, cons, gain potential and loss potential, that is why it is recommended for experienced forex traders who have a portion of capital to invest.

2.     Mini forex accountA mini forex trading account is a type of trading account that allows traders to make trades using smaller lot (eg 0.1). Most forex brokers offer brokerage accounts with mini lots equivalent to $10,000. Forex brokers offer this types of account to new clients that cannot trade full lot because of the big capital required. This type of forex trading account has advantages like low risk, low capital required and also flexibility. It also has its con because low risk management is equal to low reward.  

3.      Micro forex accountThis type of forex account are always smaller than minis, are also available through some forex brothers. Micro accounts trade in $1,000 lots and the pip movements are worth 10cents per pip. These accounts  are really only used by new forex traders with a very little forex knowledge and can be opened with as little as $(10-25).

Before you can start your online forex trading business, there are some basic steps you need to take to ensure success in your online forex trading business. They are as follows:

1.     Choosing a forex broker.

2.     Demo trading

3.     training and retraining,

4.     opening a real forex account & Go live

1.     CHOOSING A FOREX BROKER Before getting started with you online forex trading business, you need to first and foremost choose your forex broker, so what exactly is a forex broker?, Briefly, a forex, broker is a firm or company that deals with buy and sells orders according to the forex trader’s decisions. A broker makes money by charging fees or commission for their services. So before choosing your forex broker you need toi.       Check if they are Regulated: This entails finding which regulatory agency it is registered with, in the U.S. forex brokers should be registered with the (FCM) futures commission Merchant, (CFTC) commodity Future Trading Commission &NFA member. The CFTC and NFA were made to protect the public against fraud, manipulation, and abusive trade practices. You can visit NFA at 

www.nfa.futures.org/basicnet/.ii.     Nice Customer Services:Since forex is a 24-hour market, a 24-hour support is a must! So check if you can contact this forex broker by phone, email, chat etc. Are their reps knowledgeable, fast and accurate in answering your questioniii.    Online Trading PlatformMost, if not all, forex brokers allow you to trade forex over the internet relatively easy. The backbone of any forex trading platform is their ordering system. So trading software is very important. Get a feel for the options that are available by trying out a demo account a few online forex brokers.Your forex broker’s layout should include;a.     The ability to view real-time currency exchange quotesb.     Account summary showing current profit or loss and margin available and any margin locked in open position.c.      A web based software hosted on your forex broker site that you can log in from any computer with internet connection anywhere.d.     A downloadable and installable client-based software program that can allow you to trade forex on your computer  v Don’t forget your high speed internet connection forex market is a fast moving market so it repairs a high speed internet connection (dial up does not work here).v Bells and WhistlesAny forex trader which his salt should offer you real-time quotes and allows you to quickly enter and exit forex trades.iv.  Mini/Micro AccountsMost forex brokers offer very small “Mini-accounts and even smaller “Micro-account for as little as a couple of hundred dollars.These little cute accounts are a great way to get started and test your trading skills and gain Experience. Broker’s policies Before selecting an online forex broker, you should closely examinev  Their features and policies. They are as follows: Available currency pairs, Transaction costs, margin requirement, Minimum Trading Size Requirement, Rollover charges, margin account interest Rate, Trading Hoursv  Summary of what to look for in an online forex broker /dealer: low spread, low minimum account openings, instant automatic execution of your orders, free charting and technical analysis, leverage.

2. Demo Trading          A demo account will provide you with a deeper understanding of forex trading   principles. You will have access to all forex market instruments and latest quotes without a risk of losing your real money. You can open a free forex demo account for free with most forex brokers. This account has full capabilities of a “real” forex account. Why is it free?,  It’s because the forex broker want you to learn the ins and outs of their trading platform, and have a good time trading without risk, so you’ll fall in love with them and deposit real money. The demo account allows you to learn about the forex markets and test your  trading skills will zero risk.

YOU SHOULD DEMO TRADE FOR AT LEAST 2 MONTHS BEFORE YOU EVEN THINK ABOUT PUTTING REAL MONEY ON THE LINE.‘’Don’t lose your money’’ declarationPlace your head on your heat and say…  ‘’I will demo trade for at least 2 months before I trade forex with real money.’’Now touch your head with your index figure and say…‘’I am a smart and patient forex trader’’

3.  TRADING AND RETRAINING          You should practice on your forex demo account very well so as to know when to long (buy) or short (sell) your position, and also know how to minimize your forex trading loss and maximize your profit. forex trading is an extensive course, you need to train very well, you can do this by training with a qualified forex teacher or professional try to implement the various forex expert trading tips and tricks you have learning to see which works best, and try to develop your own forex trading style and ideas. Master how to read chart and other indicators, and master which decision to take at what time.

4.     Open a real forex account and go liveOpening a new forex online trading account with a forex broker can be done in three easy steps:

i.                   Registration

ii.                 Selecting an account type

iii.              Activating your accounti.                   

Registration: you will have to submit paper work in order to open a forex account and the forms will vary from one forex broker to the order. They are usually provided in PDF format and can be viewed and painted using adobe acrobat reader program.ii.                 

Selecting an account type: when you are ready to open a live forex account you have the choice of opening a forex trading account under your personal name or a business name. Also, you will have to decide whether or not you want to open a ‘standard’’ forex account or a ‘mini’’ forex account (or ‘mini’’ forex account if available).  Inexperienced forex  traders or traders with a small amount of capital to trade should always open a mini forex account only experienced traders with lots of money should open a standard accountAccount activation: once the forex broker has received all the necessary paper work, you should received and email with instruction on completing your account activation. After these steps have been completed, you will receive a final email with your username, password, and instruction on how to fund your trading forex account.    

     Interest Rates.We use two methods to profit from the difference in countries interest rates:

     ii.            Interest Income

  iii.            Capital Appreciation    i.               

Interest Income: This implies that if the interest rate of country A is at 5.25% while the interest rate of country B is set at 0.25% you could have taken advantage of this rate difference by borrowing a large sum of country B currency, country exchanging it for country A and using that to purchase bonds or CDS at the country 5.25% rate. In other words, you could have borrowed money at 0.25%, lent it out at 5.25%, and made a 5% return. Or you could sure yourself all the hassle of becoming a money lender by simply trading the currency pair to effect the same transaction.  ii.         

Capital Appreciation: – this is a situation where by between two currency pairs like USD /JPY spread 05/06, as the US interest rates stayed higher than Japan’s the dollar continued to increase in value. Investors who traded the dollar gained form interest income as well as the US dollar  capital appreciation.    

Economic Growth: In forex, Economic growth is best measured by a looking at EUR/USD country’s gross domestic products, or GDP, the United States and Eurozone running at $13 trillion and $11 trillion respectively. (2005-2016). the difference in growth rates between these two major economic power US & Eurozone was clearly reflected in currency movements (forex).If the Eurozoneis lagging significantly behind the United States in economic growth, averaging an anemic 2.5% rate throughout the year while the US expanded at a healthy 5% rate. Consequently, investment capital will flow Europe to the US causing EUR/USD to drop, a reverses of the above will also causes the EUR/USD to appreciate and verse versa.3.     

Geo-Politics: In foreign exchange trading (forex), geo –politics can be a veritable tool in predicting and winning forex trades.Example, using the USD/CAD as a case study, if there is a political news or political instability like a “No –confidence vote” in CANADA for instance, it will cause the Canadian dollar to weaken against the dollar, and also a survival of this can cause the Canadian dollar to strengthen.Geo-Political risk can also mean wars, terrorist attacks, or missile launches, but it can also relate to milder yet still politically powerful events such as G7 meetings and OPEC announcements.4.     

Trade & Capital flow: in forex trading, trade and capital flow can be a very crucial way to winning in forex trading. For Example, on the surface, the US currency, with its record multi-billion dollar trade deficit and near & $1trillion current account deficit should depreciate significantly. However, that has not been the case as the US has been able to attract more than enough surplus capital from the rest of the world to offset the negative effects of its massive trade deficits. For the time being, trade-flow deficits do not matter to the dollar. However, should the US become unable to attract enough capital flow to offset its deficits, the currency may weaken.Also the issuance of bonds by a high interest paying country like New Zeland can cause the NZD/USD or NZD/JPY to strengthen or weaken as a result of trade flowing into the country.5.      Merger and Acquisition: can be a very powerful tool to profit from forex trading. When a country’s capital assets such as equities, suddenly find favor from the rest of the world, they indirectly affect pricing in the foreign Exchange market as deal makers first have to buy the country’s currency before they can by the stock. But a reverse can also be devastating in the currency.

In order to succeed from the fascinating world of forex trade, we must understand the basic factors that effect a currency’s value.
When making forex trades we analyze the following five key factors, they are:

(1) Interest rate
(2) Economic growth
(3) Geo-politics
(4) Trade and capital flows
(5) Merger and Acquisition Activity.

*Note:if you can predict how each of these factors affect your forex trades, you have the foundation to make serious returns or forex gains.

(1) Interest rates
   We use two methods to profit from the difference in        countries interest rates:
   (a) Interest income
   (b) Capital appreciation

(a) Generating interest income.
Every currency in the world comes attached with an interest rate that is set by its country’s central bank. All things being equal, you should always buy currencies from countries with high-interest rates and finance these purchase with currency from countries with low-interest rates.

(b) Generating income from capital appreciation.
Just as a country’s interest rate increases, the value of the country’s currency also increases. This phenomenon gives you a chance to profit from yours currency’s increased value or capital appreciation.

(2) Economic growth
The next factor that is considered when predicting a country’s currency movements is its economic growth. The stronger the economy, the greater the possibility that the central bank will raise its interest rate to tame the growth of inflation. And the higher a country’s interest rates, the bigger the likelihood that foreign investors will invest in a country’s financial markets. More foreign investors means a greater demand for the country’s currency. A greater demand results in increase in a currency value.

(3) Geo-politics
This involves the use of both political and economic releases to analyze forex successfully, this is where the political and also economic assets are very responsive to disturbances in the political landscape, because currencies represents countries rather than companies.
Therefore, the general rule of thumb in the forex market is that politics almost always trumps economics. The history of forex is littered with examples of political trades.

(4) Trade and Capital flows
This entails that before making your final prediction about a country’s currency, you should take a moment to categorize the country as dependent on either trade flow or capital flow.
Trade flow refers to how much a country earns through trade.
Capital flow refers to how much investment a country attracts from abroad.
Some countries like Canada,Australia,New Zealand and Germany are sensitive to trade flows.These countries achieve a large portion of their growth through the export of various commodities.
In the case of Canada oil is the primary source of revenue. For Australia, industrial and precious metals dominate trade, and in New Zealand, agricultural goods are crucial source of income. Trade flows are also important for export dependent countries such as Japan and Germany. For countries such as US and UK, which have large liquid investments markets, “capital flow” are of far greater importance. In countries financial services are paramount, in fact, in the US, financial services represent 40% of the total profit of the standard and poor500(S & P 500).

(5) Merger and Acquisition
This is an area of corporate finances, management and strategy dealing with purchase and or joining with other companies. In a merger, two organizations join forces to become a new business usually with a new name. Because the companies involved are of typical size and stature the term “merger of equals” is sometimes used.
Example, if a European company wants to buy a Canadian asset for $20 billion, it would have to go into the currency market and acquire the currency to effect this transaction. Typically, these deals are not price sensitive because the acquirer may have a date by which the transaction is to be completed. Because of the underlying dynamic, merger and acquisition flow can exert a very strong temporary force on forex trading, sometimes skewing the natural course of currency flow for days or weeks.

There has been a constant argument among different school of thoughts as to which type of forex trading strategy is the best between this two main type of forex trading strategy;fundamental analysis and technical analysis.
 There is no basic type of forex trading strategy that is the best between fundamental analysis which is based on looking the market on current news release, interest rate,political and economic news,forces of demand and supply.In fundamental analysis we represent currencies with their economy and as a countries economy appreciates so also does it currency etc.
  And technical analysis which is looking the market based on price movements.Technical analysis is the study of price movement. In one word, technical analysis =
charts. The idea is that a person can look at historical price movements, and, based on the price action, can determine at some level where the price will go. By looking at charts, you can identify trends and patterns which can help you find good trading opportunities.
  Finally,in order to become a true Forex master you will need to know how to effectively use both types of analysis. The Forex market is like a big flowing ball of energy, and within that ball is a balance between
fundamental and technical factors that play a part in determining where the market will go.