Forex Trading - What is it?

By: Simon Tridull


The biggest global financial market exceeding $2 Trillion a day is the Forex Trading market. This can be a very profitable market but can also be extremely hazardous. However, all types of investors can carry out trading big or small since there are many trading systems out there for every level of investment. The word Forex is a derivation of foreign and exchange.

Forex trading is trading actual currencies at today's exchange rate with banks and is speculative, just like investing in other assets like stocks, unit trusts, real estate and so on. It is expressed in currency pairs, where one currency is the base and one is the counter or quote currency, for example: US dollars and Euro or US dollars and UK sterling. The major currency pairs are Euro/US Dollar (EUR/USD) and US Dollar/Japanese Yen (USD/JPY), British Pound/US Dollar (GBP/USD) and US Dollar/Swiss Franc (USD/CHF). It is all about putting your money into other currencies, so you can gain the interest for the night, for time period or the difference in trading money all around.

Forex trading allows you to leverage more funds than you actually have by letting you put effectively a deposit on the purchase of a lot (Usually, a standard Forex lot is worth $100 USD) or a mini lot (Usually a Forex mini lot is worth $100 USD). This all depends on the margin you are trading at. For example if you purchased a lot of $100 USD by using the power of leverage you would pay $1 if you had a margin of 100 to 1.

By allowing leveraging through trading on a margin, this allows people from all walks of life to be able to trade on the Forex Market. However, it is of major importance that you understand what you are doing before you start to trade as you could lose a lot of money in a very short period of time. Although Forex Trading may be difficult to understand at the beginning, there are good profits that can be made.

Although very nerve wracking at times, Forex trading can be great fun to do. Also, when done correctly, it can also be very profitable in a short period of time. In part, this is because the Forex market operates throughout the world 24 hours a day for 6 days a week so there is nearly always trading opportunities to be taken. As well as this, regardless of whether a currency exchange rate is going up or going down, you can either buy or sell (even if you do not own that currency) and make a profit if the change continues in the right direction.

Although it is hard work initially learning what to do with trading Forex, it can be worthwhile with the potential profits to be gained. However, it will take extensive studying and practice before you will be able to make any real money.

The only way you can get used to the nature of forex trading is to research it and watch the market for a few weeks without actually taking part. Then once you think you understand the principles, you can always test your skills first in a demo account before you go 'live' with real money. But remember, Forex trading is speculative and any capital used should be money you can lose NOT rent money. In fact, mini forex trading is advisable for beginners that are new to the forex trade market to allow them to first get a feel once they try with real money.

Forex trading is not without its risks and many of these will be learnt during the course of trading. In addition, please note that forex trading is highly speculative and you do need to understand the risks involved in trading forex with any form of buy sell signal or forex signal for the forex market internet based or other form of trading.

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