Forex traders make money by selling a currency position for more than they have bought it for. This is similar to other markets, such as the stock market.
One difference however, is that an FX trader can sell a position, and then buy it back later. This is called “short selling”, or going short. A trader would do this if the market will decline. Of course, a trader can also buy a position for sale later at a higher price. This is called “going long”.
It is therefore possible to make money in either up or down markets, as long as you can determine which direction the market will go in.
For every dollar in profit, someone else has lost a dollar. This is because when you “go long”, someone else has “gone short”, and they take the other side of your position. This is called a zero sum game. FX markets neither create or destroy wealth - they only move money from one party to another.
The minimum price movement in the FX market is called a “pip” and this generally represents 0.0001, where a price is quoted to four significant figures, or 0.01 where a price is quoted to two significant figures. This is usually between $8 and $10, depending on the currency pair you are trading.
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