If you don’t know, currency trading is a method to exchange currency for money. Foreign exchange is short for foreign exhange. It is commonly written FX and it’s often called FOREX trading. It is a huge world market with the ability to make lots of money.

The forex market is based around the indisputable fact that different currencies have different relative values. As an example, one dollar could be worth 0.7200 of an euro one day, and 0.7300 the next. This would be worth $1.34 at the higher rate.

That might not sound like much but the wonder of the currency market is that you can exchange currency worth one hundred times your investment. This is known as leverage and it means that if you put a hundred EU Dollars on that trade, you would actually have a position size of ten thousand Euro dollars. So in this example you would make not 1 EU Buck but 100 EU Dollars. Costs (spread) could be two pips so you would have made 98 euros or $134. Not bad when you were only hazarding a hundred EU Dollars.

Naturally, this is merely an example. The stop is triggered at a certain point if the price goes against you, and the trade is mechanically closed. This means that you would never lose more than a certain quantity on one trade.