What is forex Trading?
The short introduction explains the basics of trading forex online, a brief explanation of the markets and the major benefits of trading forex online.
Overview
Foreign exchange, Forex or just FX are all terms used to describe the trading of the world's many currencies. The Forex market is the largest market in the world, with trades amounting to more than USD 4 trillion every day. This is more than one hundred times the daily trading on the NYSE (New York Stock Exchange). Most Forex trading is speculative, with only a few percent of market activity representing government’s and company’s fundamental currency conversion needs.
Unlike trading on the stock market, the forex market is not conducted by a central exchange, but on the "interbank" market, which is thought of as an OTC (over the counter) market. Trading takes place directly between two counterparts necessary to make a trade, whether over the telephone or on electronic networks all over the world. The main centers for trading are Sydney, Tokyo, London, Frankfurt and New York. This worldwide distribution of trading centers means that the Forex market is a 24-hour market.
Trading Forex
Forex trading is the exchange of one currency for another with the aim of making a profit within the Foreign exchange market. Each foreign currency transaction involves a buyer and a seller. The buyer and seller effectively swap currencies. This implies that to buy a currency, you must sell a currency; which is why currencies are always quoted and traded in pairs.
A currency trade is the simultaneous buying of one currency and selling of another one. The currency combination used in the trade is called a cross (for example, the EURO/US Dollar, or the GB POUND/Japanese Yen.). The most commonly traded currencies are the so called "majors" EURUSD, USDJPY, USDCHF and GBPUSD.
The most important Forex market is the spot market as it has the largest volume. The market is called the spot market because trades are settled immediately, or "on the spot". In practice this means two banking days.
The internet gives Forex Traders access to real time exchange rates, research and analysis, 24 hours a day.
To trade Forex you will need to open an account with a Forex Trading Platform provider. We use and recommend Interactive Brokers (IB).
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