Forex trading involves simultaneous exchange (aka buying and selling) of currencies from different countries against each other on the forex market. Currency exchange market is different from other markets in many ways:
There is no uptick rule.
There are no limits on the size of the position.
There is no insider trading.
The market is available 24 hours, 6 days a week.
Forex brokers don’t charge commissions for their services. They get paid via bid/ask spreads.
You can use leverage to magnify potential gains.
You have at most 50 currency pairs to choose from compared to over 5,000 stocks. 50 choices make your life much easier!
You can start trading with as little as $50. Micro and mini accounts are available with most online brokers today.
There are no clearing houses to guarantee the trades.
Forex is the most liquid market in the world!
FX Market is purely speculative. There is no physical exchange of currencies.
In order to trade forex online, a broker or a market maker comes into equation. Forex traders choose the desired currency pair and place orders based on their understanding of the market trends and forecast of the change in value of the currency price.
The pair is quoted with exchange rate – a rate for which one currency can be bought/sold for another. Exchange rates are influenced by economic, industrial and geopolitical events.
Pip, an abbreviation of percentage in point, is the smallest increment of a trade. In forex market, prices are quoted to the forth decimal point. The change in that forth decimal point is called 1 pip.
The following currency pairs are called majors and are the main players in the market:
Dollar and Euro (USD/EUR)
Dollar and Japanese Yen (USD/JPY)
British Pound and Dollar (GBP/USD)
Dollar and Swiss Franc (USD/CHF)
All forex currencies possess a nickname. Below is just a couple of examples:
GBP is also called Cable, Pound or Sterling
US Dollar is often called Greenback or Buck
Swiss Franc is referred to as Swissie
Australian dollar nickname is Aussie
Kiwi means New Zealand dollar
Canadian dollar is Loonie
Trading forex carries a high level of risk and is not suitable for everyone. Before entering forex market make sure that you understand that this is not gambling and without proper knowledge and certain level of experience you may lose your investment. The rule of trump is never invest the capital you cannot afford to lose.
Definition of Forex Trading
What is FOREX?
FOREX stands for Foreign Exchange or, in other words, currency trading market. Currently FOREX is the largest and fastest growing financial market in the whole world with a daily volume of almost 3 trillion dollars. Quite a number, won't you say? That is 30 times higher then the turnover of all USA equity markets combined! Other names for FOREX include "Retail forex", “FX” , "Spot FX" and even just "Spot".
Who is involved?
You might ask yourself who is involved in currency trading. The participants of FOREX are central and commercial banks, multinational corporations, institutional investors, governments, hedge fund and private individuals like you.
What is Traded?
Foreign (currency) exchange speaks for itself. Like in all markets, you simultaneously trade one thing for another. Same goes for Forex where the "things" are currencies of different countries – you buy one currency (in other words money) and sell another at the same time.
Objectives of Currency Exchange
You are a FOREX trader and your objective is to make money by trading one currency for another and then wait for the price to change so that the currency you bought will increase in value compared to the one you sold (and not the other way around!)