WHY DO EXCHANGE RATES CHANGE?

WHY DO EXCHANGE RATES CHANGE?
Currencies trade on an open market, just like stocks, bonds, computers, cars, and many other goods and services. A currency's value fluctuates as its supply and demand fluctuates, just like anything else.

An increase in supply or a decrease in demand for a currency can cause the value of that currency to fall.
A decrease in the supply or an increase in demand for a currency can cause the value of that currency to rise.
A big benefit to forex trading is that you can buy or sell any currency pair, at any time subject to available liquidity. So if you think the Eurozone is going to break apart, you can sell the euro and buy the dollar (sell EUR/USD). If you think the price of gold is going to go up, based on historical correlation patterns you can buy the Australian dollar and sell the U.S. dollar (buy AUD/USD).

This also means that there really is no such thing as a "bear market," in the traditional sense. You can make (or lose) money when the market is trending up or down.

HOW DO YOU READ A QUOTE?
Because you are always comparing one currency to another, forex is quoted in pairs. This may seem confusing at first, but it is actually pretty straightforward. For example, the EUR/USD at 1.4022 shows how much one euro (EUR) is worth in U.S. dollars (USD).

WHAT IS A LOT?
A lot is the smallest trade size available. FXCM accounts have a standard lot size of 1,000 units of currency. Account holders can however place trades of different sizes, so long as they are in increments of 1,000 units like, 2,000, 3,000, 15,000, 112,000 etc.

WHAT IS A PIP?
A pip is the unit you count profit or loss in. Most currency pairs, except Japanese yen pairs, are quoted to four decimal places. This fourth spot after the decimal point (at one 100th of a cent) is typically what one watches to count "pips". Every point that place in the quote moves is 1 pip of movement. For example, if the EUR/USD rises from 1.4022 to 1.4027, the EUR/USD has risen 5 pips.

WHAT IS LEVERAGE/MARGIN?
As mentioned before, all trades are executed using borrowed money. This allows you to take advantage of leverage. Leverage of 400:1 allows you to trade with $1,000 in the market by setting aside only $2.50 as a security deposit. This means that you can take advantage of even the smallest movements in currencies by controlling more money in the market than you have in your account. On the other hand, leverage can significantly increase your losses. Trading foreign exchange with any level of leverage may not be suitable for all investors.

The specific amount that you are required to put aside to hold a position is referred to as your margin requirement. Margin can be thought of as a good faith deposit required to maintain open positions. This is not a fee or a transaction cost, it is simply a portion of your account equity set aside and allocated as a margin deposit. Learn more about FXCM's Margin Requirements.