What Is Forex? The Currency Market Explained

In EURUSD, the euro is the base currency and the dollar is the quote currency. A price of 1.0850 means one euro costs 1.0850 dollars. If you expect the euro to strengthen against the dollar, you buy the pair; if you expect it to weaken, you sell it.

Pairs are grouped by liquidity. Majors include the dollar and one other large economy's currency. Minors pair large currencies without the dollar. Exotics involve a smaller economy's currency and carry wider spreads and larger gaps.

A pip is the standard smallest quoted move — the fourth decimal place on most pairs, and the second decimal on yen pairs. Position size is measured in lots: a standard lot is 100,000 units of the base currency, a mini lot 10,000, a micro lot 1,000.

On a standard lot of a dollar-quoted pair, one pip is about $10. That single fact is the whole reason position sizing matters: a 50-pip stop on one standard lot risks around $500, which is a tenth of the entire drawdown allowance on a $50,000 evaluation account.

Leverage lets you control a position larger than your account balance, with margin held as collateral. It magnifies both outcomes equally; it does not change your expected return, only the speed at which you find out.

Holding a position overnight also incurs a swap, positive or negative, reflecting the interest-rate difference between the two currencies. On multi-day holds swaps compound quietly and can turn a marginally profitable strategy into a losing one.

Interest rates and central bank expectations dominate. Beyond that: inflation prints, employment data such as US non-farm payrolls, growth figures, political risk and cross-border flows. Because a pair is a ratio, both sides matter — a strong euro and a weak dollar produce the same EURUSD chart.

Liquidity follows the clock. The London and New York sessions carry most of the volume and most of the range; the Asian session is generally quieter, and the overlap between London and New York is the busiest window of the day.

A prop firm evaluation gives you a simulated account priced off live forex feeds. You trade the same pairs, spreads and swaps, and the firm pays a share of the profit you produce rather than lending you money.

The trading conditions are the product, so read the rules before the marketing: how drawdown is measured, when the daily limit resets, and whether news trading, expert advisors and weekend holds are permitted.