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Forex Basics

The foreign exchange market being the world's largest trading platform, is up and running around the clock from Sydney to New York at least 5 days a week.

 

At any given time people are trading forex somewhere in the world with the forex market's liquidity being an important driving force of it's unparalleled popularity. Currencies are traded in pairs with the buying of one corresponding to the selling of the other. Sounds simple, right? Well, yes and no. The general theory may be simple but to actually trade forex for consistent and worthy profits is much easier said than done.

The term Forex is short for foreign currency exchange market, and it refers to the direct trading of foreign currencies. Forex is actually a virtual network of currency dealers who are connected by means of telecommunications. This interbank market was originally created in 1971 when international trade changed from fixed to floating exchange rates. The Forex market is open 24 hours a day and the currency exchange operations are continued through working days of the week. Forex is a worldwide market, so when you are sleeping in the United States, dealers in Europe can be trading currencies with their Japanese counterparts. It is the largest financial market in the world, with the equivalent of over $3-4 trillion changing hands every day whereas traded volume on the stock markets is only 500 billion US dollars. Forex is part of the bank-to-bank currency market which is known as the 24-hour interbank market.

The US dollar is by far one of the most popular halves of currency pairs traded (eg. USD/JPY, EUR/USD, USD/AUD, etc.) When placing a position you will always be presented with a "buy" and "sell" price of the 1st currency in the pair. Essentially, if you buy say, 100 USD at 90 JPY and sell at 100 JPY, you'll pocket a tidy little profit of US$10. If you were to sell the USD at 110 JPY and buy at 100 JPY, then you would yet again profit another ten bucks. This is the easy part of trading on the foreign exchange market. The difficult part is knowing how to buy and sell the right currency pair at the right time.

Forex trading is becoming more popular every day and it is an exciting and fast-growing marketplace. Transactions are conducted within seconds online and the markets move quickly and take new directions all the time. Forex markets are not based in one place meaning there isn't some large building on Wall Street where a load of people shout and waive dollar bills in an effort to get other people to buy them. Trading System Software to help investors in the foreign exchange market has been around for a long time, but just recently it has become extremely popular. Trading Forex has become really accessible for the private investor because of the World Wide Web, and can be a recession proof business, but it must be noted that Forex is not a means of getting rich quick and executing foreign exchange orders with this aim in mind could well end in financial hardship. Trading in online Forex means that when you are investing in foreign exchange, you are buying one currency and at the same time selling another currency.

 

When you are using a forex broker you are more than likely paying their renumeration via the spread of the trade. The spread is the difference between the Bid and Ask price when placing your trade. So if the Bid price is 87 JPY and the Ask price 90 JPY, then the spread of the trade is 3 JPY. You will need the market to move more than 3 JPY in your favour in order to make any profit from the trade.

 

Another very attractive and alluring trap of the foreign exchange market is the leverage offered to forex traders by many brokers known as a margin. This leverage ranges from 100 to 400 times your capital and is a double-edged sword. It can make you an obscene amount of money very fast or it can send you past "Go" without collecting $200 if you mess up.

 

This leads back to the old adage that you should never risk money that you can't afford to lose. Remember and abide by this rule and you'll be fine no matter what the outcome in the foreign exchange market.

 

Confused? Find it difficult, but still want to get in on Forex and make money? Then let a computer software package do _ALL the trading for you!

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Click here for the Next Article: Understanding Forex Quotes

 

Learn Forex: Forex Training Articles
Learn Forex: Forex Indicators
Forex Software Reviews
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Forex Indicators

Average Directional Movement Index

Moving Average Convergence/Divergence (MACD)

Stochastic Oscillator

Relative Strength Indicator (RSI)

Moving Average

Bollinger Bands

Fibonacci Indicator

 

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