The forex word means foreign currency exchange. Forex trading means to buy and sell currencies in order to make profits when the currency value changes with respect to another currency. The smallest unit that a currency value can change is called the PIP. This value can be 0.01, 0.001, and 0.0001 depending on the currency pair.
When trading forex, the trader must choose the currency pair to trade with. Any currency pair consists of what is called the base currency and the quote currency. The base currency represents the good that the merchant can trade it and achieve profit with it. The quote currency represents the local currency at the country that the trader belongs to. When trading the trader buys or sells the base currency with the value given in the quote currency. When the base currency changes value with respect to the quote currency, the trader can make profit by buying or selling the base currency.
The decision on whether to buy or sell depends on the prediction made by the trader. This can be done by techniqual analysis and news analysis. This must be learned and practiced well before trading.
All brokers apply the concept of margin with the clients. Trading by margin means that the trader pays just a fraction of the amount he takes from the base currency. Recall the base currency is the good which we buy to sell it with higher value. Instead of buying it with the full value, the client pays to the broker only a fraction of its value which can be 1% or less. This value is called the margin and varies from broker to broker. The less this values the fewer amounts we pay but more risk and profit. Thus if we trade with 1000$ for example we can buy it with just 10 $ if the margin is 1%. The losses and profits will be taken or added to the account of 10$