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Most forex investors begin by investing in the major currency pairs, or the majors. The majors are those currency pairs that are comprised of the most important currency in the global markets - the U.S. dollar (USD) - crossed with one of seven other globally significant currencies - the euro (EUR), the Great British pound (GBP), the Swiss franc (CHF), the Japanese yen (JPY), the Canadian dollar (CAD), the Australian dollar (AUD) and the New Zealand dollar (NZD).

Take some time to learn the following major currency pairs because you will most likely be using them extensively:

Extra material

The exotic currency pairs, or the exotics, are the currency pairs that are comprised of the most important currency in the global markets - the U.S. dollar (USD) - crossed with any currency that is not considered a major currency. Exotic currencies - like the Swedish krone (SEK), the South African rand (ZAR), or the Mexican peso (MXN) are called exotic because they are associated with illiquid currencies that might not be available in a standard trading account.

Exotic currencies are usually lightly traded and have large bid/ask spreads. However, many so-called "exotic" currencies are becoming more popular and more and more investors are trading them.

Take a look at the following list of exotic currency pairs because you may be interested in diversifying your forex portfolio with a few uncorrelated currency pairs:

Currency crosses, or the crosses, are the currency pairs that are comprised of any two currencies - so long as neither of them is not the U.S. dollar (USD). The euro (EUR) paired with the British pound (GBP) or the Australian dollar (AUD) paired with the Japanese yen (JPY) would be considered currency crosses.

The following is a list of some of the more popular currency crosses:

Match the following scenarios to the appropriate answer:

If the U.S. dollar is gaining strength and the other currency in the pair remains static, in which direction should the following currency pairs be moving?

You are looking at a chart of the AUD/USD.

• Which currency is strengthening during the time period identified by arrow "A"?
• Which currency is strengthening during the time period identified by arrow "B"?

You can make money trading the forex if you buy a currency pair when the first currency in the currency pair (the base currency) is strengthening compared to the second currency in the currency pair (the quote currency).

Entering the trade - Buying a currency pair is as simple as clicking the "Buy" button in your trading station.

While all you have to do is click a button, knowing what happens when you click that button is extremely important. However, you don't have to worry about the technicalities right now. You will learn what happens behind the scenes shortly when you learn about trading on margin.

Exiting the trade - Buying a currency pair is only the first step in the trading process. To complete your trade and take your profits, or losses, you have to exit your trade. To exit a trade, you simply have to do the opposite of whatever you did to enter the trade. If you bought a currency pair to enter the trade, you must sell that same currency pair to exit the trade.

For example, if you buy the EUR/USD to enter the trade, you must sell the EUR/USD to exit that trade.

You can make money trading the forex if you sell a currency pair when the second currency in the currency pair (the quote currency) is strengthening compared to the first currency in the currency pair (the base currency).

Entering the trade - Selling a currency pair is as simple as clicking the "Sell" button in your trading station.

While all you have to do is click a button, knowing what happens when you click that button is extremely important. However, you don't have to worry about the technicalities right now. You will learn what happens behind the scenes shortly when you learn about trading on margin.

Exiting the trade - Selling a currency pair is only the first step in the trading process. To complete your trade and take your profits, or losses, you have to exit your trade. To exit a trade, you simply have to do the opposite of whatever you did to enter the trade. If you sold a currency pair to enter the trade, you must buy back that same currency pair to exit the trade.

For example, if you sell the EUR/USD to enter the trade, you must buy the EUR/USD back to exit that trade.

You cannot make money trading the forex by buying or selling a currency pair when the first currency in the currency pair (the base currency) is not strengthening or weakening compared to the second currency in the currency pair (the quote currency). When a currency pair moves sideways, it is extremely difficult to make money by trying to buy or sell the currency pair.

To make money when a currency pair is moving sideways, you need to use forex options. You'll learn more about forex options - what they are and how you can put them to work in your account - later on in your forex education. For now, focus on learning how to identify when a currency pair is going up or down and how you can take advantage of those movements.

Leverage is probably the one characteristic of the forex market that intrigues individual investors the most. Leverage is the ability to convert a small amount of power into a larger amount through the use of a tool. Imagine you are asked to move a large boulder from the spot where it is currently resting. You could certainly try to push and move the boulder with your bare hands, but your job will be much easier if you can use a tool - like a large pole - that you can place under the boulder that will give you some leverage.

The same principle holds true when you are investing in the forex market. You can make money by investing just your own money, but you can make much more money if you can use the tool of financial leverage by borrowing money from your dealer. Note that a greater exposure of course leads to a greater risk of losing money.

You can lever, or increase the investing power of, your forex accounts by using some of your own money to enter a trade and then borrowing the rest from your dealer. For example, the forex market allows you to control $100,000 with as little as $1,000 of your own money. That means you only have to pay for 1 percent of the position with your own money. You can borrow the remaining 99 percent of the purchase price from your dealer - but do remember to check the interest rate that you borrow at to avoid surprises.

The leverage you enjoy in the forex market is determined by the margin you are required to post for each trade.

The forex market is an exciting market because your dealer is willing to lend you money so you increase your profit - generating potential in all of your trades. Before your dealer lets you borrow money, however, you have to show that you have some money to cover any losses you may incur. Margin is the money you set aside with your dealer for safe keeping to prove that you are able to cover your losses.

For example, if you buy the EUR/USD, you will be required to set aside 1 percent of the position size as margin. That means if the position size is 100,000 euros, you will be required to set aside the equivalent of 1,000 euros to prove to your dealer that you can cover losses of at least 1,000 euros should your trade move against you.

Different currency pairs have different margin requirements. Major currency pairs have lower margin requirements because their high levels of liquidity make it easier to enter and exit your trades quickly - which gives your dealer added confidence it will be able to close out your positions without incurring unexpected losses. Exotic currency pairs have higher margin requirements because their low levels of liquidity make it harder to enter and exit your trades quickly.

Many beginning forex traders get confused by thinking that the money they set aside as margin actually goes toward purchasing currencies. It does not. You borrow 100 percent of the purchase price from your dealer. Your margin only shows your dealer you have money to cover any losses that you may incur.

When you buy a currency pair, you do not have to come up with the cash on your own. Your broker loans you enough of one currency to buy enough of the other currency in the pair. For example, if you click on the "Buy" button to buy the EUR/USD pair at 100,000 units, your dealer will loan you enough U.S. dollars (USD) to buy 100,000 euros (EUR). If the EUR/USD exchange rate is 1.4000 at the time, your dealer will loan you 140,000 U.S. dollars to buy 100,000 euros.

Example

The spread is the distance between the price at which you can buy a currency pair and the price at which you can sell a currency pair at any given moment.

You cannot buy a currency pair and immediately turn around and sell it at a lower price. The price at which you can buy a currency pair (the "Ask" price), is always higher than the price at which you can sell a currency pair (the "Bid" price).

Whenever you enter a trade, you start out with a small loss because of the spread. You must overcome the spread - hold onto the trade long enough for it to move through the spread - before you will be profitable on your trade. It is a small hurdle to clear and a small price to pay for the leverage and liquidity GET Financial provides in the forex market.

Regional material: The Singapore Trader Says