2.1 Currency Pairs: Base, Quote, and Families
Lesson Objective
Understand how Forex pairs work (base vs quote) and why majors/minors/exotics matter.
Forex is always traded in pairs. You buy one currency and sell another at the same time. The base is the first currency, and the quote is the second.
EUR/USD = 1.1050
1 EUR buys 1.1050 USD. EUR = base, USD = quote.
Majors
Include USD. Usually tighter spreads (higher liquidity).
Minors
No USD. Spreads can be wider than majors.
Exotics
Often wider spreads + more volatility. Beginners should be careful.
Beginner mistake to avoid
Trading exotics early because they “move fast”. Fast moves + wide spread often punish beginners.
2.2 Pips, Pipettes & Lot Sizes
Lesson Objective
Know how price movement is measured (pips) and how volume is measured (lots).
Pip
Most pairs: 0.0001. JPY pairs: 0.01.
Pipette
The extra decimal: 1/10 of a pip (5th digit).
Lot
1.00 = 100,000 units; 0.10 = 10,000; 0.01 = 1,000.
Quick example
EUR/USD moves from 1.1050 to 1.1082 → difference = 0.0032 → 32 pips.
Beginner checklist
- • Always know your lot size before entering.
- • Bigger lot = bigger pip value = bigger risk.
- • If you can’t explain pip value, trade smaller.
2.3 Bid, Ask & Spread (Your Trading Cost)
Lesson Objective
Understand why you start negative on entry and how spread becomes a real cost.
BID
The price you sell at (broker buys from you).
ASK
The price you buy at (broker sells to you).
Spread formula
Spread = Ask − Bid. Example: Bid 1.1048, Ask 1.1051 → Spread = 0.0003 = 3 pips.
Reality check
If you open a trade and close it immediately, you will lose the spread. That’s why you must factor spread into your plan.
2.4 Buy vs Sell (Long vs Short)
Lesson Objective
Know what you’re predicting: base currency strength or weakness.
📈 BUY (Long)
You expect the base currency to rise vs the quote.
Buy opens at Ask, closes at Bid.
📉 SELL (Short)
You expect the base currency to fall vs the quote.
Sell opens at Bid, closes at Ask.
Common mistake
Thinking “Sell” means you must own something first. In Forex CFD/spot trading, you can short via your broker.
2.5 Profit & Loss (P&L) Calculation
Lesson Objective
Convert pips into money so you stop guessing risk.
The practical formula
P&L = pip movement × pip value × lot size
Your platform may show pip value, but you must still understand it.
Example (simple)
EUR/USD, 0.05 lot. If 1 pip ≈ $0.50 for your size, and price moves +35 pips: profit ≈ 35 × 0.50 = $17.50
Beginner safety
If you don’t know your pip value, your lot size is too big. Trade smaller until the math is easy.
2.6 Leverage, Margin & Account Types
Lesson Objective
Understand leverage without hype and choose safer account types for practice.
Key formula
Margin required = position size / leverage
Leverage does not reduce risk — it only reduces margin required.
Danger example
Small account + big lot size can wipe you fast. Beginners should focus on micro lots and risk control.
Standard
Balance in dollars. Regular contract sizing.
Mini
Smaller steps depending on broker.
Cent
$1 shows as 100 cents. Great for low-risk real-money practice.
Beginner rule
Use 0.01 lots (or cent account). Risk ≤ 1% per trade. Consistency first.
Module 2: Workshop & Quiz
Test understanding before Module 3. Self-check only (no signals, no promises).
📋 Quick Quiz
1) For most Forex pairs, 1 pip equals…
2) Spread is…
3) Margin required equals…
🛠️ Practical Workshop
TASK 1: Pair Breakdown
Pick one pair (example: EUR/USD) and write: base, quote, and what “buy” means on that pair.
TASK 2: Risk Math
Write your lot size, your stop-loss (pips), and compute the approximate money risk.
Student Notes (Real)
Keep this section honest: real notes, real learning points. No fake testimonials. Publish only with permission.
✅ What I understood
“Spread is the cost — now I understand why I start negative.”
— Student note (placeholder)
⚠️ What I struggled with
“Pip value changes by lot size. I needed examples.”
— Student note (placeholder)
🎯 My next step
“Build a simple risk rule and journal my trades.”
— Student note (placeholder)
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Module 2 Complete
Next you will learn market structure and order types — so you can stop trading blindly and start trading with structure.
Reminder: Education only. No guaranteed profits.