All of the world's currencies trade on the decentralized global market known as forex, foreign exchange, FX, or currency trading. With an average daily trading volume of over $6.5 trillion, the forex market is the biggest and most liquid market in the world. In forex, a currency pair is the value of one currency (the base currency) in terms of the other (the counter currency). A currency’s value is based on the strength of an economy, political stability, interest rate, inflation, productivity, trade balance and risk.

Using borrowed money to increase the possible returns on an investment is known as leverage in forex trading. Leverage can be used in the foreign exchange market by investing through forex brokerages that provide their customers with margin accounts. Typically, in order to make a trade, traders are not allowed to spend more than they have.

You are not required to pay the entire deal value up front when using leverage. Rather, you make a tiny down payment, called margin. The entire size of the deal determines your profit or loss when you finish a leveraged position.

Therefore, it is crucial to learn how to manage your risk because, while leverage can increase your earnings, it also increases your danger of multiplied losses, even losses that could surpass your initial investment.

The units of measurement for movement in a forex pair are pip values. A change in a currency pair's fourth decimal place is typically referred to as a forex pip. Therefore, the EUR/USD exchange rate has moved one pip if it goes from $1.3531 to $1.3532. Micro pips, sometimes known as pipettes, are the decimal places that follow the pip and indicate a fraction of a pip.

The Japanese yen is the most prominent example of a currency that deviates from this criterion when it is listed in considerably smaller amounts. In this case, one pip is represented by a movement in the second decimal place. Thus, EUR/JPY has moved one pip if it goes from ¥172.19 to ¥172.18.

To standardize forex transactions, currencies are traded in lots, or batches. A typical lot in forex trading is 100,000 units of currency. As an alternative, you can occasionally exchange micro lots and mini lots, which are valued at 1000 and 10,000 units, respectively.

Many forex trading companies provide leveraged accounts because individual traders may not have $100,000, £100,000, or €100,000 to invest in every trade.

Every traveler who has received foreign currency has engaged in forex trading. For instance, when you go on vacation to Europe, you exchange dollars for euros at the going rate, selling U.S. dollars and buying euros, and when you return, you sell euros and buy U.S. dollars. The foreign exchange market is primarily over-the-counter (OTC), taking place either via electronic platforms or over the phone between banks and other participants. Only 3% of trades, primarily futures and options, are done on exchanges.

A Forex broker is an individual or business that facilitates financial transactions. A broker will essentially offer to purchase and sell currencies for its customers in order to earn from the spread, which is the difference between the buy and sell prices.

Forex brokers can be divided into two categories: market makers and retail brokers. Retail brokers provide their clients with foreign exchange trading services. In most cases, retail brokers do not offer to buy or sell currencies to one another. Market makers serve as market makers on one side of a transaction, such as when a consumer puts an order, and offer both buy and sell positions. Retail brokerage services are another service that many market makers provide to their retail clients.