Forex Trading Frequently Asked Questions (FAQ)
What Is the Foreign Exchange (Forex) Market?
The Foreign Exchange Market, or Forex, is the world’s largest and most liquid financial market, operating 24 hours a day, five days a week. It is a decentralized, over-the-counter market built on an Electronic Communications Network (ECN) that links banks and financial institutions globally.
Currencies are traded in pairs, and the average daily trading volume exceeds $5 trillion, making Forex larger than any stock market in the world.
What Is a Currency Pair?
A currency pair represents the exchange rate between two currencies. For example, EUR/USD shows how many U.S. dollars (USD) one euro (EUR) can buy.
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The first currency (EUR) is called the base currency
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The second currency (USD) is called the quote or counter currency
Common Currency Symbols:
- USD – US Dollar
- EUR – Euro
- GBP – British Pound Sterling
- JPY – Japanese Yen
- CHF – Swiss Franc
- AUD – Australian Dollar
- CAD – Canadian Dollar
- NZD – New Zealand Dollar
The most traded pairs—like EUR/USD, USD/JPY, and GBP/USD—are known as major pairs. These pairs are highly liquid and typically offer lower spreads, which is key for profitable trading.
Long and Short Positions
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A long position is taken when a trader expects a currency pair to rise in value.
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A short position is taken when a trader expects the price to decline.
What’s the Difference Between Dealing Desk and Non-Dealing Desk Brokers?
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Dealing Desk (DD) brokers, also known as market makers, handle your trades in-house. They often take the opposite side of your trades and profit from the spread.
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Non-Dealing Desk (NDD) brokers provide direct access to the market via external liquidity providers. NDD brokers include:
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ECN (Electronic Communication Network) Brokers
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STP (Straight Through Processing) Brokers
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NDD brokers generally offer better pricing, faster execution, and more transparent trading conditions.
What Is a Market Maker Broker?
A Market Maker sets both the bid and ask prices and executes trades internally—essentially acting as a counterparty to clients. While they may offer fixed spreads, these are usually wider, and there can be conflicts of interest, especially with large trades. For this reason, professional traders often prefer ECN brokers.
What Is an ECN Forex Broker?
An ECN broker connects traders directly to the interbank market without intermediaries or dealing desks. Key advantages include:
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Tighter spreads (especially during volatile periods)
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Transparent pricing and depth-of-market data
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Anonymity of trades
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Execution is fast and without manipulation
Some ECN brokers charge a small commission per trade, while others include their fees in the spread.
What Is the Spread and What Do Buy/Sell Quotes Mean?
The spread is the difference between the buy (ask) and sell (bid) prices of a currency pair, usually measured in pips.
Example:
If GBP/USD is quoted at 1.5500 / 1.5510, the spread is 10 pips.
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Buy Quote (Ask) – The price at which you buy the base currency (1.5510)
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Sell Quote (Bid) – The price at which you sell the base currency (1.5500)
What Is a Pip in Forex?
A pip (Percentage in Point) is the smallest unit of price movement in most currency pairs.
- For most pairs (like GBP/USD), 1 pip = 0.0001
- For pairs involving the Japanese Yen (e.g., USD/JPY), 1 pip = 0.01
What Is a Lot in Forex Trading?
A lot refers to the standardized size of a trade:
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Standard Lot = 100,000 units
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Mini Lot = 10,000 units
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Micro Lot = 1,000 units
Lot size affects both the required margin and potential profit/loss.
What Is Margin in Forex Trading?
Margin is the collateral required by your broker to open a trading position. It’s divided into:
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Used Margin – Funds allocated to open positions
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Free Margin – The Remaining balance available to open new trades
The required margin is set by each broker and varies depending on leverage and trade size.
What Is Trading Leverage?
Leverage allows traders to control large positions with a relatively small deposit.
Example:
With 100:1 leverage, a $1,000 deposit can control $100,000 in trades.
While leverage can amplify gains, it also increases risk. High leverage is best used cautiously, particularly on major pairs with low spreads.
What Is Slippage in Forex?
Slippage occurs when a trade is executed at a different price than expected, often during volatile market conditions or slow execution.
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It’s measured in pips and can affect profitability
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ECN brokers generally offer faster execution and lower slippage than Market Makers
Forex Trading FAQ – Final Thoughts
Whether you're a beginner or experienced trader, understanding the core concepts of Forex, such as spreads, leverage, broker types, and execution speed, is crucial to success. Always test strategies on a demo account before risking real capital.
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