Forex basics: understand the mechanics before the trade
Forex terminology is easy to memorize and easy to misunderstand. This lesson connects pair pricing, position size, leverage, margin and execution so the numbers on a platform make sense together.
Currency pairs
A forex quote compares two currencies. In EUR/USD, EUR is the base currency and USD is the quote currency. A price of 1.1700 means one euro is valued at about 1.17 U.S. dollars in that quoted market.
Bid and ask
The bid is the price available to sell at that moment; the ask is the price available to buy. Their difference is the spread. Real spreads can change with liquidity, session and volatility.
Pips and price movement
A pip is a conventional unit of price movement. Many major pairs quote a pip at the fourth decimal place, while JPY pairs commonly use the second. Platforms can display additional fractional pip digits.
Lots and notional exposure
A “standard lot” commonly represents 100,000 units of the base currency in spot-FX/CFD conventions, but contract specifications are provider-specific. Mini and micro sizing may be available. Always check the symbol specification inside your own platform.
Leverage
Leverage allows a larger notional position relative to the margin posted. It magnifies gains and losses measured against the capital supporting the position; it does not make the underlying market move more.
Margin
Margin is collateral required to hold a position. It is not a stop loss and it is not the maximum amount you can lose. Broker margin rules can change by instrument, jurisdiction, client classification and market conditions.
Long and short
A long position benefits if the quoted instrument rises; a short position benefits if it falls, before costs. In a currency pair, that means simultaneously expressing a relative view between two currencies rather than owning one isolated asset.
Retail OTC forex structure
In some retail markets, especially U.S. OTC forex, the dealer is the counterparty rather than the trade occurring on a centralized exchange. Market structure differs by product and jurisdiction, so identify whether you are trading OTC forex, a CFD, futures or another instrument.
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Research essentials
Use ESTVELO as a research workspace: verify the source, check the jurisdiction, understand the assumptions and separate market information from a personal trading decision.