How to start trading Forex?
Consider a national currency as a security, like stocks, commodities or precious metals. To make a profitable trade you either need to buy it at a low price and then sell at a higher price, or sell at a high price and then buy back at lower price. By being able to go long or short a currency allows to speculate on whether you think the currency will increase or decrease in value. There are many factors that cause the price of a currency to move such as interest rates, economics, politics and also supply and demand to name a few.
Currencies are traded in pairs such as the Euro against US Dollar (EUR/USD). The first currency EUR is called the base currency and the second currency USD is called the quote currency. A Forex transaction involves buying one currency and selling the other currency at the same time. If you go long (buy) EUR/USD you are buying EUR and simultaneously selling USD. The exchange rate reflects the value of one currency against the another currency. If the price (exchange rate) for EUR/USD was 1.1850 then 1 Euro is equal to 1.1850 US Dollars.
If you think the EUR will appreciate against the USD you can buy 1 lot (100,000) EURUSD at 1.1850. Assuming you are correct and over a period of time the price rises to 1.1950 you can then sell EURUSD. The difference in the 2 prices is 100 pips and the pip value for 1 lot is $10 per pip. On this trade your profit would have been $1,000.
Risk Warning please note the opposite could have also happened, and if the price fell to 1.1750 then this would have resulted in a loss of $1,000.