Every country has its own currency for business and trade. When you travel to other parts of the world or cross the border into Canada or Mexico, you become part of the foreign exchange market world.

When you trade in your hard-earned U.S. Dollars for Canadian Dollars or Mexican Pesos for traveling purposes at a bank or currency exchange, you will notice a difference in the buying power of your currency (U.S. Dollar) compared to the other currency.

The next time you take a trip outside the borders of your home country and exchange or convert into another country’s currency, you have participated in the largest liquid market in the world – the Foreign Exchange market. You are experiencing the Forex markets at work first hand.

If you travel for a couple of weeks or more, you can see changes in the buying power of various currencies from the beginning of the trip to the end of the trip.

Here’s how it works exactly: In Forex, traders are buying or selling the currencies of various countries. For example, you may buy Euro Dollars with U.S. Dollars or sell Japanese Dollars for U.S. Dollars.

Currencies are traded in pairs, meaning that you are really trading one currency for another.

Another example or simple way to understand this is to consider what you do when you go on foreign vacations. In the Forex market, you could have simply traded the “Currency Pair” called USD/CHF, first selling USD for CHF and later buying back USD with the CHF you have. Basically, you are trading one currency for the other. Under our example, for every Dollar 1.0000 traded, you would receive 1.2000 Swiss Franc in return.

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When trading, you are attempting to capture “PIPs” (Price Interest Points), which is one/one-hundredth of a cent (for Dollars.)

You will notice that the above exchange numbers have two extra decimals at the end. Using the example above, there is a one-pip difference between 1.2000 and 1.2001. There is also a one pip difference between 1.2000 and 1.1999.

One Pip = $10 for one standard lot

One Pip = $1 for one mini lot or 10 mini lots = $10

These are the two basic ways of trading using mini lots or standard lots. I will not get into the leverage, margin, or money management information in this article, but I wanted you to have a basic understanding of standard and mini lots, as well as a pip.

The currency pairs are usually traded and quoted with a “bid” and “ask” price. The “bid” is the price at which you are willing to buy, and the “ask”’ is the price at which you are willing to sell.

You can generate positive pips when the market is moving up or when it is moving down. It will be very difficult to make a profit when the market doesn’t move at all.

Timing of the various sessions becomes another tool to learn.

The key to successful trading lies in selecting one or two pairs of currencies that you wish to trade in as a beginner. You stalk these pairs until you learn everything possible about how they react in current market conditions.

As you gain confidence and experience, you may wish to add more pairs to your trading portfolio. But for a new trader or investor, it is always advisable to have limited pairs to ensure simplicity during the learning process.

Choosing the right time to trade enhances your trading success. If you are operating outside of America, you may have to wake up extremely early to catch the

European markets and end your day extremely late to catch the Asian markets.

Those living in America may want to prepare for the opening of the U.S. session, London close, and Asian openings depending on your specific schedule.

You can think of Forex as the currency equivalent of stocks and shares although it should also be noted that Forex has many big advantages over stock trading.

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