Forex Trading Basics

Pips and lots

A pip is the fourth decimal of most currency prices: EUR/USD moving from 1.1000 to 1.1001 is one pip (for pairs with the Japanese yen it is the second decimal). A standard lot is 100,000 units of the base currency; on EUR/USD one pip on one standard lot is worth about $10. A mini lot is 10,000 units and a micro lot 1,000. Try it with the position size calculator.

Spread and commission: the cost of a trade

The spread is the gap between the buy and the sell price. You pay it every time you open a trade. Some accounts add a commission per lot instead of a wider spread; brokers quote it "per side" (opening or closing) or "round turn" (both together, twice the per-side figure). To compare two accounts, add both: spread in pips times the pip value, plus the round-turn commission. The cost per lot calculator does this for you, and Spreads lists what each broker publishes.

Leverage and margin

Leverage of 1:30 means $1 of your money controls $30 of currency. The money set aside to keep a trade open is the margin. Leverage makes losses as large as gains: a 1% move against a trade at 1:100 can wipe out the whole margin. In the EU, UK and Australia, retail leverage on major pairs is capped at 1:30 by law; offshore entities often allow far more, with far less protection.

Margin call and stop-out

When your losses eat into your margin, the broker first warns you (margin call), then starts closing your trades (stop-out) at a level it publishes as a percentage of margin. A broker that publishes a stop-out of 0% lets a trade run until your margin is gone.

Swaps

Holding a trade past the daily cut-off costs (or sometimes pays) a swap: the interest difference between the two currencies plus the broker's charge. Swap-free (Islamic) accounts replace it with other fees at some brokers. See the swap calculator.

Before you trade real money

Most retail CFD accounts lose money; each broker publishes its own figure and we show it on every page. Start on a demo account, risk only money you can afford to lose, and read the risk warning.