There are five components to a forex trade: the currency pair; the number of lots to be traded; the trade direction of long or short; the order type, either market or entry; and the money management consideration of the stop-loss.

In the forex market, currency pairs set by the IMF are traded one against another. The base currency is the first of the pair and its value is always one; the second currency is called the counter or cross currency. For example, in the EUR/USD, the most commonly traded currency pair in the world, the Euro drives the trades; when the Euro appreciates against the U.S. dollar, the graph of the currency pair rises. A quote of 1.4135 would mean that 1 Euro is equal to 1.4135 U.S. dollars.

When currency prices are quoted, two prices are given: the bid and the ask. The bid price, which is always the lower of the two prices, is the price that the market-maker is willing to pay you for the currency pair. The ask price, which is always the higher of the two prices, is what you must pay to the market-maker should you wish to purchase the currency pair. Simply put, to trade in the forex market, you have no choice but to buy high and sell low.

The difference between the two prices is called the spread, and it’s the commission charged for executing the trade. The smaller the spread, the more profit from the trade that the trader gets to keep.

Currencies are traded in lots of either ten thousand units or one hundred thousand units. As Easy-Forex™ accounts are highly leveraged, with ratios between 50:1 and 200:1, one lot of $10,000 can generally be purchased for $100. The amount of leverage available to a trader is set by the broker and is based on the equity of the account.

The Easy-Forex™ trading platform simplifies trading long or short. When executing a trade, the trader merely states which currency he wishes to buy versus which he wishes to sell, rather than sorting out the direction of the trade depending upon which currency is the base and which the cross.

The two forex order types are day trades, also called market orders, which are executed at the current market price; and limit trades or entry orders, where the trader specifies the price at which he is willing to purchase. Limit trades are executed should the market reach the specified price, otherwise they cancel within a set length of time.

Often, when a trader is anticipating a market movement, she will enter a limit trade so she doesn’t have to sit at the computer waiting for her parameters to be met. But if the market is moving fast and the trader wants to jump aboard, day trades can be swiftly executed.

The Easy-Forex™ trading platform will calculate the stop-loss for you based on the parameters of each trade. However, you can change this from the “My Position” window, should you desire a tighter or looser stop, although this may change the margin requirement for the trade. Remember that a too-tight stop can be triggered by regular market jitters, forcing you out of a potentially valuable trade.