In Forex you are actually taking a position in a pair of currencies for example EUR/USD. This is a currency pair combination made up of the value of the Euro vs the value of the US Dollar. The currency pairs are bought in what is called a “lot”. A lot is $100,000 of the associated currency pair. The are ways to but partial lots or what are called mini lots which are less than $100,000. Now this may look like a huge amount of money but one of the intriguing features in the Forex market is the ability to leverage your investment dollars. With a leverage of 200-1 you would be controlling $100,000 of foreign currency with an investment of $500.
If you are feeling that the EUR/USD currency pair will go up in price you would place an order to go “long” (or buy) the pair. If you felt that the price of the EUR/USD was going to go down you would “short” (or sell) the currency pair and you would gain value as the price continued to drop.
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