FOREX trading is always done in currency pairs. For example, imagine that the exchange rate of EUR/USD (Euro to US Dollars) on a certain day is 1.1999 (this number is also referred to as a "spot rate", or just "rate", for short). If an investor had bought 1'000 Euros on that date, he would have paid 1'1999 US Dollars. If one year later, the FOREX rate was 1.2222, the value of the Euro has increased in relation to the US Dollar. The investor could now sell the 1'000 EURO in order to receive 1'222 USD Dollars. The investor would then have USD 23.00 more than when he started a year earlier.

However, to know if the investor made a good investment, one needs to compare this investment option to alternative investments. At the very minimum, the return on investment (ROI) should be compared to the return on a "risk-free" investment. Long-term US government bonds are considered to be a risk-free investment since there is virtually no chance of default - i.e. the US government is not likerly to go bankrupt, or be unable or unwilling to pay its debts.

Trade only when you expect the currency you are buying to increase in value relative to the currency you are selling. If the curreny you are buying does increase in value, you must sell back that currency in order to lock in the profit. An open trade (also called an "open position") is one in which a trader has bought or sold a particular currency pair, and has not yet sold or bought back the equivalent amount to complete the deal.

It is estimated that around 95% of the FX market is speculative. In other words, the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency.