What Is the Forex Market?
The foreign exchange market (forex or FX) is the largest and most liquid financial market in the world, with over $7.5 trillion traded every single day. Unlike the stock market, forex has no central exchange — it operates 24 hours a day, 5 days a week across global financial centres: Sydney, Tokyo, London, and New York.
When you travel abroad and exchange naira for dollars, you're participating in the forex market. Traders do the same thing, but they buy and sell to profit from price movements rather than to travel.
Currency Pairs Explained
Currencies are always traded in pairs — you're simultaneously buying one currency and selling another. Every pair has two components:
- Base currency — the first currency listed (e.g. EUR in EURUSD)
- Quote currency — the second currency (e.g. USD in EURUSD)
- The price tells you how much of the quote currency you need to buy one unit of the base currency
- If EURUSD = 1.0850, it means 1 Euro costs $1.0850
There are three categories of pairs: Majors (always include USD — EURUSD, GBPUSD, USDJPY), Minors (no USD — EURGBP, EURCAD), and Exotics (one major + one emerging market currency — USDNGN). Majors and minors have the tightest spreads and most liquidity, which is why most beginners should start there.
What Is a Pip?
A pip (percentage in point) is the smallest standard unit of price movement in forex. For most pairs like EURUSD and GBPUSD, one pip = 0.0001. For JPY pairs like USDJPY, one pip = 0.01.
There's also a pipette — the 5th decimal place (0.00001) — used for even more precise pricing. Most brokers show 5 decimal places for standard pairs.
Lots — How Much Are You Trading?
A lot is the unit of measurement for trade size in forex. There are three types:
- Standard lot = 100,000 units of base currency — 1 pip ≈ $10
- Mini lot = 10,000 units — 1 pip ≈ $1
- Micro lot = 1,000 units — 1 pip ≈ $0.10
As a beginner, always start with micro lots (0.01 on your platform). This keeps your risk extremely small while you learn.
Understanding Leverage
Leverage allows you to control a position much larger than your deposit. A leverage of 1:100 means that with ₦10,000 in your account, you can control a position worth ₦1,000,000.
This sounds powerful — and it is. But leverage cuts both ways. If the market moves against you, your losses are also amplified by the same ratio. A 1% move against a 1:100 leveraged position wipes out your entire deposit.
Bid, Ask, and Spread
Every currency pair has two prices: the Bid (price you sell at) and the Ask (price you buy at). The difference between them is the spread — this is how your broker makes money.
Choose brokers with the tightest spreads — wide spreads eat into your profits significantly over time.
Market Sessions
The forex market has four main trading sessions. Understanding them helps you trade at the right time:
- Sydney Session (11pm–8am WAT) — quietest session, low volatility
- Tokyo Session (1am–10am WAT) — active for JPY pairs
- London Session (9am–6pm WAT) — highest volume, best for EUR and GBP pairs
- New York Session (2pm–11pm WAT) — high volatility, overlaps with London 2pm–6pm WAT (best trading window)