When you do a Forex trade, you buy a certain amount of currency, which is called a "lot." Depending on what kind of account you have, one lot can be worth different amounts of money. One lot is usually worth $100,000 in a standard account, but only $10,000 in a mini account.
But Forex trading accounts are leveraged, which means you don't have to own that expensive lot of currency. You just have to control it, and if you do, any profit it makes is yours. A margin deposit is a kind of rental agreement where you put up a small amount of money to get the right to control a large amount of currency. In a standard account, you need to put up $1,000 of your own money to control that $100,000. In a mini account, you only need to put up $100 to control that $10,000.
How much money you make also depends on how much leverage you use. One pip of a currency pair with the U.S. dollar as the base is worth $10 in a standard account and $1 in a mini account. This means that if you correctly predict how the market will move and make a trade that earns you 200 pips, which is not an impossible goal, your profit will be $2,000 if you have a standard account and $200 if you have a mini account.
You don't have to trade a standard account in Forex if you want to make the most money; not every new trader can afford to. Instead, you can trade more than one lot if you think you can predict the market well. To continue the previous example, if your successful trade made you 200 pips and you bought five lots of the same currency, you would have put $500 of your own money into a mini account but made $1,000 in profit (two hundred pips times five lots). In a regular account, you would have put up $5,000 and made $10,000.
The margin in your account will tell you how many lots you can trade. That's not just the amount you put in; it also takes into account any open trades you have and any profits or losses you might make.
In Forex trading, there are two kinds of orders that can be made. The most common kind is called a "market order," and it just buys or sells the pair of currencies at the current market rate. This kind of trade is easy to set up—with some online trading platforms, it only takes one click—so you should use it when the market is moving quickly. (If you do the one-click thing, always edit the trade to add a stop-loss. More on that in a minute.)
The other kind of order is called an entry order, and it's used when you want to buy or sell a currency pair, but only at a certain price. For example, let's say that the GBP/USD is range-bound, meaning that it moves up and down in a channel but not enough to make you want to trade.
But there are signs that the Cable could leave that channel soon. So you could put in an order to buy, but only if the price went above a certain level. If the Cable breaks out, your entry order would be triggered, and you would buy the currency pair when the price goes above your set point. If it doesn't, you won't be stuck with a currency pair that's not going anywhere, and the entry order that hasn't been executed yet will be cancelled after a certain amount of time.
A stop, also known as a stop-loss, is a point where you decide ahead of time that you want to get out of a losing trade. A limit, which is also known as a "take-profit," is a pre-set point at which you decide to get out of a winning trade. Even though it might not look like it at first, both are important. Using stops and limits correctly lets you know how much risk you are taking and encourages disciplined trading.
