Introduction to Forex Trading

So you're interested in the exciting world of Forex Trading? The fact that you have found this page and got this far is a great start. You now stand a much better chance of succeeding and profiting in foreign exchange trading than the majority of beginners who jump straight into it, without any idea of whats what. I bet you're wondering, so what exactly is Forex Trading and why is everyone always talking about it? Well simply put, FX trading (or Forex Trading) is the simultaneous buying and selling of a currency pair. Ever been to one of those currency exchange booths at an airport, you know the ones with the confusing table of numbers displayed on the front? Exchanged some of your local currency for your nice holiday overseas, after a few weeks of glorious sunshine you've returned and decided to change the extra money you didn't spend in ''paradise'' back to your local currency again. Well if you had actually paid attention, each time you exchange any money at one of these booths, they print you out a receipt. Displayed on this receipt is the exchange rate that you got at the time of transaction. So if you look at both receipts, the one before the nice long trip away, and the one after, you will notice a difference in the rate. This difference is essentially how people make money on the Forex markets. By trading various currencies from all over the world, waiting for a change and profiting. Yahoo your first success if Forex trading! If we can call it that. This foreign exchange market, also known as ''Forex'' or ''FX'' is the largest financial market in the world. With a trading volume of almost $4 trillion dollars every single day, it far exceeds any other market in the world on a day to day basis. To better put this in perspective, check out this simple bar graph below:

Forex 101 - Introduction to Forex Trading

As you can see the Forex market is huge compared to other well-known stock exchanges. The New York Stock exchange on average trades just $74 billion per day, the Tokyo Stock Exchange $18 billion whilst the London Stock Exchange trades $7 billion each day. Furthermore, the deepest and largest financial market in the world, the Forex, sees the greatest quantity of trading in a few major currency pairs. The EUR/USD, USD/JPY and EUR/JPY are often the most traded currencies throughout the whole of the market on a day to day basis. But this isn’t to say that the other remaining currency pairs and crosses don't see a fair amount of action too.

Participants

The Forex markets are made up of a number of different types of participants. These vary in size dramatically and usually fall under one of the following:

  • Personal forex traders – Run & manage their own small trading accounts online
  • Professional forex traders employed by large, international investment and commercial banks – These traders profit on behalf on the major banks they represent, making money for other banks and customers
  • International corporations – who look to protect their exposure to sudden foreign exchange rate fluctuations.