Informational Text – What Is Forex Trading?

The foreign exchange (Forex) market is the world’s largest financial market. Instead of trading shares, Forex traders exchange one currency for another, such as EUR/USD (euro vs. U.S. dollar) or USD/JPY (U.S. dollar vs. Japanese yen).

Each currency pair is written as base currency / quote currency. If EUR/USD = 1.1000, that means 1 euro is worth 1.10 U.S. dollars. When traders buy a pair, they are buying the base currency and selling the quote currency at the same time.

Forex prices change due to many forces, including:

• Interest rate decisions by central banks
• Inflation and employment reports
• Global political and economic events

Because Forex markets operate 24 hours a day across different global sessions—Tokyo, London, New York—there is almost always movement happening somewhere. Traders must know which session they are in and what news events might be coming next.

Forex uses leverage as well, but instead of ticks, it uses pips, which represent tiny price changes (0.0001 for most pairs). Even a small movement in a currency pair can lead to big gains or losses when combined with leverage and large lot sizes.

Scenario Example – USD/JPY and Interest Rates

The U.S. Federal Reserve is expected to raise interest rates. Higher rates usually strengthen a currency because investors earn more by holding assets in that currency. A trader predicts the U.S. dollar (USD) will gain value against the Japanese yen (JPY).

The trader buys the currency pair USD/JPY. After the rate hike is announced, USD strengthens significantly and the pair rises—allowing the trader to profit from the decision. A move of just a few dozen pips, multiplied by the chosen lot size, can create a large gain.

If the rate announcement had gone the opposite way—or if the market had already priced in the news—the pair might have dropped sharply instead. In that case, the trade would have moved against the trader, and leverage would have magnified the loss.

Process Summary – How Forex Traders Think

• Choose a currency pair – Decide whether to focus on a major (like EUR/USD), minor, or exotic pair.
• Evaluate interest rates and news – Study central bank decisions, inflation, employment data, and political events that could strengthen or weaken each currency.
• Enter a long or short position – Go long if you expect the base currency to strengthen; go short if you expect it to weaken.
• Manage leverage and risk – Choose lot sizes and stop-loss levels that keep risk at a reasonable level, understanding that small pip movements can still be powerful.
• Exit when the catalyst has played out – Close the trade after the key economic event or once the market reaction is clear.

Key Vocabulary

• Pip – The smallest price unit in Forex, usually 0.0001 for most pairs (or 0.01 for pairs with JPY).
• Lot Size – Standardized trade units (micro, mini, or standard) that determine how much one pip is worth.
• Spread – The difference between the buy (ask) price and sell (bid) price for a currency pair.
• Major Pairs – The most heavily traded currency pairs, usually involving the U.S. dollar (like EUR/USD, GBP/USD, USD/JPY).
• Carry Trade – Borrowing in a low-interest-rate currency and investing in a higher-rate currency to earn the rate difference.

Cross-Strategy Vocabulary Use:

• Spread → Day Trading, Scalping, Options
• Leverage → Futures, Options

Lesson Flow – How the Session Unfolds

Learning Target: I can interpret currency movement and evaluate how global events influence Forex markets.

Essential Question: Why do interest rates affect currency value?

Bell Ringer: Students compare pip value for different lot sizes. For example, they calculate how much money is gained or lost if EUR/USD moves 10 pips with a micro, mini, and standard lot.

Mini-Lesson: The instructor explains currency pairs, pips, spreads, and global trading sessions, connecting each idea to real-world examples.

Modeling: The USD/JPY interest rate scenario is used to demonstrate cause and effect. Students see how expectations for a rate hike translate into currency movement and pip-based gains or losses.

Guided Practice: Students read short news headlines (for example, “European Central Bank cuts rates”) and decide which currency in a given pair is likely to strengthen or weaken.

Independent Practice: Students simulate a trade on a chosen pair and calculate potential pip-based gains or losses using a selected lot size. They explain how leverage affects the result.

Closure: Students answer: “Why does Forex operate 24 hours a day, and how does that shape risk and opportunity for traders?”

Exit Ticket: Define pip in your own words and explain why it matters in Forex trading.