Forex trading is the trading of different types of foreign currencies, sometimes just called currency trading.While forex trading used to be limited to large banks and institutional traders, advancements in technology have allowed smaller traders to be able to benefit from forex trading as well, via the different online trading platforms now available.
About 85% of daily forex trading involves currency trading of the major currencies of the world, usually four major currency pairs. Currency trading usually involves the US dollar against the Japanese Yen, the British pound against the US dollar, the US dollar against the Swiss franc and the Euro against the US dollar.
Here's how those look in the forex trading market: USD/JPY, GBP/USD, USD/CHF, EUR/USD.
The idea behind profiting from forex trading is taking a position in a currency that you believe will appreciate against the currency it is paired against.
The FOREX is a world wid market, meaning it is basically open 24 hours a day. This eliminates the gaps you see almost every morning with tradional stocks. The FOREX market trades approximately $1.2 trillion every day, making it very easy to get in and out of your positions quickly.
Although the large majority of the focus in the investing world is on stocks and bonds, the currenty market is the oldest and largest financial market in the world.
So why trade the FOREX market?
* The FOREX market is open 24 hours a day
* The FOREX market is extremely liquid making it very easy to get in and out of various trading positions quickly
* The FOREX market is highly leveraged. While a margin account for trading stocks has a leverage of 2 (50% margin requirement) the FOREX market can have a leverage ratio of 400. Keep in mind that while this makes your upside potential a lot greater it also makes your downside risk a lot greater as well.
* The FOREX market is always a bull market because currencies are paired off against one another, which means there is always currency that is going up.
FOREX trading is a fantastic alternative to trading commodities and futures. Remember, though, that there is still a lot of risk and you need to educate yourself before starting to trade the FOREX market.
