Education · Basics
Forex basics: pairs, pips, lots and leverage
Forex is the trading of one currency against another. You buy or sell a currency pair such as EUR/USD or USD/ZAR, and your profit or loss depends on how far the price moves, how large your position is and what it costs to hold. This page explains the terms you need before you open a live account.
Currency pairs
A pair is quoted as base/quote. If USD/ZAR is 18.20, one US dollar costs 18.20 rand. Buying USD/ZAR means you expect the dollar to strengthen against the rand; selling means you expect it to weaken.
Major pairs such as EUR/USD and GBP/USD usually have the tightest spreads. Pairs involving African currencies — USD/ZAR and, where offered, USD/NGN or USD/KES — tend to have wider spreads and can move sharply around local news.
Pips and pip value
A pip is the standard unit of price movement: 0.0001 for most pairs and 0.01 for pairs quoted in Japanese yen. If EUR/USD moves from 1.0840 to 1.0850, it has moved 10 pips.
On EUR/USD, one pip is worth about $10 on a standard lot, $1 on a mini lot and $0.10 on a micro lot. Pip value changes with the pair and your account currency.
Lot sizes
Cent accounts, offered by some brokers, display your balance in cents so you can trade very small sizes with real money while you learn.
| Lot | Units of base currency | Approx. pip value on EUR/USD |
|---|---|---|
| Standard (1.00) | 100,000 | $10 |
| Mini (0.10) | 10,000 | $1 |
| Micro (0.01) | 1,000 | $0.10 |
Leverage and margin
Leverage lets you control a large position with a small deposit called margin. At 1:100 leverage, a $10,000 position needs $100 of margin.
Leverage does not change how much you gain or lose per pip — position size does. It changes how large a position you are allowed to open, which is why high leverage makes it easy to oversize and wipe out a small account.
If losses push your equity below the broker's margin requirement you get a margin call, and positions may be closed automatically at the stop-out level.
Spreads, commissions and swaps
- Spread: the gap between the buy (ask) and sell (bid) price — the main cost on standard accounts.
- Commission: a fixed charge per lot on raw-spread or zero accounts, in exchange for tighter spreads.
- Swap: an overnight financing charge or credit for positions held past the daily rollover.
- Swap-free (Islamic) accounts: offered by many brokers on request for traders who cannot pay or receive interest.
Order types
- Market order: buy or sell immediately at the current price.
- Limit order: buy below or sell above the current price when it is reached.
- Stop order: buy above or sell below the current price, often to enter a breakout.
- Stop loss: closes a losing trade at a level you choose — set it on every trade.
- Take profit: closes a winning trade at your target.
Trading sessions from Africa
Liquidity is highest when London and New York are both open. Spreads are usually tightest then, and widest around the daily rollover and weekends.
Nigeria, South Africa and Kenya do not change their clocks, but London and New York do — on different dates. The overlap therefore moves during the year, and for a few weeks each spring and autumn it lasts five hours instead of four.
| Country | Time zone | Late Mar–late Oct | Nov–mid Mar | US/UK out of step |
|---|---|---|---|---|
| Nigeria | WAT (UTC+1) | 13:00–17:00 WAT | 14:00–18:00 WAT | 13:00–18:00 WAT |
| South Africa | SAST (UTC+2) | 14:00–18:00 SAST | 15:00–19:00 SAST | 14:00–19:00 SAST |
| Kenya | EAT (UTC+3) | 15:00–19:00 EAT | 16:00–20:00 EAT | 15:00–20:00 EAT |
Frequently asked questions
What is a pip in forex?
A pip is the standard unit of price movement — 0.0001 for most currency pairs and 0.01 for yen pairs. On EUR/USD, one pip is worth about $10 per standard lot.
How much money do I need to start forex trading?
Some brokers allow very small first deposits, and cent or micro accounts let you trade tiny sizes. Start with an amount you can afford to lose while learning, and size trades so a single loss is about 1% of the account.
What is leverage in forex?
Leverage lets you open a position larger than your deposit; at 1:100, $100 of margin controls a $10,000 position. It magnifies both gains and losses relative to your balance, so treat it as a limit, not a target.
Which currency pair is best for beginners?
Major pairs such as EUR/USD usually have the tightest spreads and steadier movement. African pairs like USD/ZAR can move sharply on local news, so trade them only once you size positions carefully.