What is Forex?

What is Forex Trading?

Forex trading is direct access trading of different types of foreign currencies. Until quite recently foreign exchange trading was mostly limited to large banks and institutional traders. Today technological advancements have enabled small traders to take advantage of the many benefits of forex trading just by utilizing online trading platforms.

The currencies of the world are on a floating exchange rate, and they are always traded in pairs Euro/Dollar, Dollar/Yen, etc. About 85 percent of all daily transactions involve trading of the major currencies.

Four major currency pairs are usually used for investment purposes. These are:

• Euro against US dollar


• US dollar against Japanese yen


• British pound against US dollar


• US dollar against Swiss franc

In the trading market their abbreviations are:

• EUR/USD


• USD/JPY


• GBP/USD


• USD/CHF

Note: this is not stocks trading. No dividends are paid on currency trading

How does it work? For example, let's say that Euros are weak against the US Dollar. You buy $100 worth of Euros at the current exchange rate. Later, Euros become stronger so you exchange your Euros back to US Dollars for more than your original $100 investment. The difference is your profit. Of course, that's a very simplistic example.

If you think one currency will appreciate against another, you may exchange that second currency for the first one and be able to stay in it. In case everything goes as you plan it, eventually you may be able to make the opposite deal in that you may exchange this first currency back for that other and then collect profits from it.

Transactions on the FOREX market are performed by dealers at major banks or FOREX brokerage companies. FOREX trading is a key part of the world markets. There are no specific trading hours. The Foreign Exchange market is active 24/7. Clients can trade any time, take profits, and place stop-loss orderss for overnight execution.

Price movements on the FOREX market are very smooth and without the gaps that you face almost every morning on the stock market. The daily turnover on the FOREX market is somewhere around $1.2 trillion, so there is always room for a new investor. The Foreign Exchange market is the biggest and most liguid market in the world.

Until fairly recently, the forex inter-bank market was not available to small speculators because of the large minimum transaction sizes and strict financial requirements. Banks, major currency dealers and very large speculators were the principal dealers. These were the only players able to take advantage of the currency market's incredible liquidity and strong trending nature.

Today, foreign exchange market brokers are able to break down the larger sized inter-bank units, and offer small traders the opportunity to buy or sell any number of these smaller units. These brokers give any size trader, including individual speculators or smaller companies, the option to trade at the same rates and price movements as the big players who once dominated the market.

As with any financial speculation you can lose as well as win. Being successful can be intimidating and difficult when you are new to the game. You trade FOREX at your own risk but as always knowledge is power. There are many self help courses and software systems available to help you master FOREX Trading. We have listed many of them in our website.