The pairs are as follows:

EUR/USD = 1.4 - selling Euros to buy Dollars

USD/EUR = 0.69 - selling Dollars to buy Euros

CAD/USD = 0.98 - selling Canada Dollars to buy U.S. Dollars

USD/CAD = 1.01 - selling U.S. Dollars to buy Canada Dollars

JPY/USD = 0.0088 - selling Yen to buy Dollars

USD/JPY = 113.27 - selling Dollars to buy Yen

Notice that the

every Euro you sell, you are purchasing 1.4 U.S. Dollars. Likewise, the

you that for every Dollar you sell, you are purchasing 0.69 Euro.

currency being sold is listed first. The EUR/USD pair tells you that forUSD/EUR pair tells

You are always buying and selling

simultaneously when you trade currency on Forex.

Now, let's say that you wanted to turn a profit in

In an ideal scenario, you would

and you would have purchased these Euros

U.S. Dollars by trading in these currencies?already be holding Euros in your online trading account,on a day when the dollar was stronger.

For example, let's say you bought 1,000 Euro when the exchange rate was USD/EUR =

1.40.

This means that every $1 you spent purchased 1.4 Euros. In order to buy 1,000 Euros at

that rate, you had to spend 1000 X 1.40 = $1,400 U.S. Dollars.

Make sense?

Now, let's say you held onto those Euros until the exchange rate went up to USD/EUR =

1.44. You wouldn't want to buy the EUR/USD pair (selling your Euros to buy Dollars)

because you would

Instead, you look for something like the Japanese Yen, which is valued

lose money, right?far below the Dollar,

and then you think: “If the Euro is worth more than $1, then I can buy more Yen with Euros

than I can with Dollars. Then, I can take advantage of the Dollar's strength against the Yen.”

So, you buy the Yen with the Euro and then sell the Yen back to buy Dollars.

Let's do the math:

EUR/JPY

1,000 EUR X 163.3 = 163,300 JPY

JPY/USD

163,300 JPY X .0088 = $1,437.04 USD

$1,437.04 - $1,400 =

= .0088$37.04 Total Profit

I want you to be able to follow this, so let's recap what happened...

First, you traded the EUR/USD pair at a time when $1,400 U.S. Dollars could buy you 1,000

Euro. You held it and waited for

Then, you traded the EUR/JPY pair, effectively buying more Yen with Euros than you could

with Dollars.

Finally, you traded the JPY/USD pair, and gained enough margin (via the purchasing power

of the Euro) to gain a $37.04 increase on your original investment of $1,400 USD.

You effectively

when I told you that Forex trading is never as simple as a one-to-one transaction!

There's one thing slightly off with the example I gave you above, though. You'll notice that I

shortened the quotes by a few decimals places? I did so for the sake of making the math

easier to follow.

However, when trading any currency pair, you

rate, all the way down to the last decimal.

Remember when I said that most profits on Forex are made by trading on

very slim margins?

Even the slightest change in one of those numbers can have an impact.

This brings us to our next fundamental concept: The 'Pip'.

both the Dollar and the Euro to rise against the Yen.leveraged a series of currency pairs in order to profit. This is what I meantmust remain mindful of the full exchangevolume, and at

Concept #3: 'Pips'

What the heck is a 'pip'? A pip, in Forex terms, is defined as the

exchange rate can make. Most of the currency pairs you trade will be quoted out to

decimal places

smallest price change anfour, and a shift in any of those decimals reflects a shift in price.

A 'standard' pip is equivalent to 1 Basis Point or 1/100

th of 1%.

Again, however, most currencies (with the exception of the Yen) are quoted to four places,

which means that shifts can occur in the
thousandth and ten-thousandths place.= 163.3

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