Introduction

The FX market is the most dynamic market in the world with currencies being bought and sold on global FX markets virtually around the clock.
The FX market allows trading to take place in almost any currency pair any hour of the day. It is highly sensitive to economic, social, and political events – whether they occur by day or by night.
Spot markets are fast moving. Traders need to be aware of currency fluctuations at all times and be prepared to react quickly. Prices change in a matter of seconds.
FX trading has developed a parlance of its own to speed up transactions. A typical deal by telephone might include phrases such as "Given. To confirm I buy euro 10 mio against USD at 1.3768, value September 30, standard payment instructions."
This is a world where bulls and bears fight for control, where a “yard” is a billion and “cable” is an exchange rate between two of the most actively traded currencies.
We look at the buying and selling of currencies, the means by which the currencies are traded and how the trade is transacted. We then examine the positions traders take, the constraints that may be applied to those positions, and the profit calculations on those positions.

Topic 1: Mechanics of Spot Trading

Buying & Selling Currencies

Stocks, bonds, and other marketable goods are bought and sold for cash every day. Currencies are similar – they can be bought and sold for cash. For that reason, currency can be said to be a commodity just like any other. In the case of FX, payment is made in a second currency.
A currency transaction requires at least two counterparties –one to buy the currency and the other to sell it. Traditionally, every deal has a market maker and price taker.
Market Maker
A market maker (quoting party), which is normally a bank, provides a marketplace where currencies can be bought and sold. The market marker quotes a bid price (at which it will purchase the currency) and an ask/offer price (at which it will sell the currency).
Price Taker 
The second party to a trade is the price taker (calling party or caller). As the counterparty to the market maker, it trades on the price quoted to it by the market maker.
The underlying commodity being bought and sold is the base currency, and the price to purchase that "commodity" is quoted in terms of the variable currency (terms or quoted currency). If the price taker wants to trade, it can buy the base currency from the market maker at the offer price or sell the base currency to the market maker at the bid price. The market maker is therefore purchasing the base currency at the bid and selling it at the offer. 
This is summarized in the table below: