Introduction To Forex Trading

For those of you who are already trading in the equities markets, you may have heard the term Forex trading quite a few times, but not really thought about what it is.
Foreign Exchange or Forex (FOReign EXchange) trading is the largest and fastest rising sector in the financial industry these days. Here is a brief look at trading in foreign exchange.

What Is Forex Trading?

The Forex market is actually the biggest financial market in the world. It trades volume of around 4 trillion U.S. dollars a day, compared to the nearest comparable market –the New York Stock Exchange (NYSE), which usually only trades a volume of 74 billion dollars each day. A look at the chart below gives you an impression of how big the Forex market is.

Forex v Stocks

This market is so huge that many institutional investors including investment funds, large banks, multinational companies and even governments trade this financial instrument . Nowadays, thanks to the internet and electronic trading, the Forex markets are now accessible to ordinary everyday people.
What is actually traded on the foreign exchange is money. It consists of the buying and selling of currencies, which are traded through brokers and are traded in pairs, a base currency & a counter currency.
When you are trading currency, you are investing in the economic health, good or bad, of a country. For example, if you buy U.S. dollars then you would be thinking that the U.S. economy is in good shape and might get better, therefore increasing the value of the dollar, which in turn increases the value of your Forex investment. Of course, if the U.S. economy takes a turn for the worse, then your investment goes down with it. Whatever the market thinks about the current health of a country’s economy would directly be reflected on the price of its legal tender and this is how currencies go up or down. The beauty of Forex trading is that you can make trades on a currency going down in value as well up.

Forex For Everyday People.

Originally, trading in the Foreign Exchange was a private world for huge companies and banks and extremely wealthy individuals, but not for normal citizens. However, with the the Internet shrinking the boundaries of the world, trading is now offered to retail traders. And these days, almost anyone can now invest in the Forex markets. All you need to take part is a small amount of money, a computer and, as an absolute must, a high-speed Internet connection. Once you have signed up for an account with one of the many online Forex brokerages you are ready to trade.
Unlike trading in stocks & shares, which have centralised exchanges or market places situated in major cities throughout the world, Forex is what is known as Over The Counter (OTC) trading, which means there are no central exchanges, so you can trade from anywhere in the world. However, the three main centres for this trade are United States, United Kingdom and Japan. These countries handle majority of Forex transactions and because of the different time zones involved Forex trading goes on for 24 hours a day, everyday from last thing on Sunday to late Friday evening.

Today, the Foreign Exchange, as the largest market in the world, is fast paced and enormous. And it has become a very lucrative arena for many traders who may have  participated in trading equities and in other financial markets.
Although this particular market has the potential for huge rewards, you must remember that without careful risk management your losses can be equally huge. It is a fast moving market and taking part is definitely not for the faint hearted.

This 8 minute video gives a good over view of Forex trading, and if you are still interested in investing in this particular market, take time to be familiar with the game and make sure you get the right educational background. A good place to get a Forex education is Babypips.com, the “school” there is a must for anyone thinking of getting in on this exciting market.  Hector DeVille, a full time professional Forex trader, also offers some great training so take a look at what he has to offer; after all, there is no such thing as too much education. When it comes to learning about Forex, going the extra mile will all be worth it, and once you have tasted success trading the foreign exchange markets, you will be ready to take on anything in trading.