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Making money in the foreign exchange market is a speculative process. You are betting that the value of one currency will increase relative to another.

Currencies are traded and priced in pairs. Take a quote for a euro-to-U.S. dollar pair of 1.2131. The base currency is the euro, and it’s worth one unit. The U.S. dollar is the quote currency, which is the amount that one unit of the base currency can buy.

In this example, one euro can buy 1.2131 U.S. dollars. Investors make money through the appreciation of the quoted currency, or a decrease in the base currency.

Another way to look at it is to think of the base currency as a short position. You are selling the base currency, or the euro, to buy the quoted currency, or the long position. One euro can buy $1.2131 U.S. dollars. To make money, the investor must sell the euro when its value appreciates relative to the U.S. dollar.

Assume the euro appreciates to 1.2141 U.S. dollars. On a lot of $100,000, the investor gains $100. That’s an increase to $121,410 from $121,310.

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