What is Forex Trading?

by Khaleef "Fat Guy" Crumbley on August 24, 2012

in Finance

Forex trading is also known as currency trading or currency changing, has been around since ancient times.  In fact, there are references in the bible about currency exchangers that used to convert money and charge a fee.  However, Forex trading has evolved quite a bit since then, and is now the largest daily market in the world by dollar value.  Here is what you need to know about Forex trading.

Forex Trading

What is It Forex Trading?

The Forex market is short for the decentralized trading of global currencies.  Individuals and companies can trade or exchange currencies from around the world.  Currencies are always traded or exchanged in pairs, for example EUR/USD is the exchange between the Euro and the US Dollar, and it is always based on the first currency.  So in this example, if EUR/USD = $1.50, it would mean that 1 Euro is equal to $1.50.

The foreign exchange market is unique because it has huge trading volume every day, leading to extremely high liquidity.  An average, of $3.2 trillion dollars exchanges hands every day, with over 80% of those transactions involving the US Dollar.  The market is also unique because it is open 24 hours a day during the week.

There are many different ways to trade in the Forex market as well.  For example, you can trade the spot market, which is a direct exchange between two currencies, or you can do a forward contract, which the money doesn’t change hands until a future date.  You can also do a swap, which two people agree to exchange currencies for a certain length of time.  You can also buy futures and options on currencies as well.

How to Start With Forex Trading?

Now that you know what it is, you may be wondering how you can get started trading.  Well, the first thing you need to do is find a broker that has Forex trading.  For example, you can use Alpari Forex trading platforms which is a system offered by the Forex brokerage Alpari.  These platforms offer a full system for trading in the Forex markets, along with various research tools and other useful information to get started.

If you are thinking about getting started trading Forex, remember that substantial risk is involved and if you’re not careful, you can actually lose more than you invest (because it is traded on margin and it is a leveraged product).  Just understand what you’re getting into, and practice your strategies first!

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