What is Forex trading?

Forex TradingForex is short for foreign exchange; most people will be familiar with the concept of foreign exchange having transferred their cash into another currency to go on holiday or do business. The Foreign exchange markets are is the world’s largest financial market with an estimated $4 trillion dollars being traded daily, this figure excludes much derivative trading meaning that the real figure is likely higher. It has been estimated that 70% of daily trading volume can be put down to speculation, this is due to the fact that many currency pairs float freely against one another (the rate of exchange goes up and down) giving traders and speculators the opportunity to make substantial profits when the exchange rate turns in their favour. For example suppose a trader develops a hunch that the US Dollar is going to rise against the British Pound for some reason or other. He could then go into the open markets and buy 100,000 US Dollar (USD) using the Pound as his base currency. Luckily for our example trader the price of the US Dollar did go up rising from 1.63 to 1.65, making the trader a profit of £0.02 per dollar netting him a total profit of £2,000. Much of Forex trading is very short term with some people often keeping positions open for only a few minutes. Using different indicators and strategies to determine what trades to place. In the long run changes in the price of Foreign exchange are driven by a number of different economic factors including economic growth, government fiscal & monetary policy and trade balances are what ultimately affect the price of Forex. While there are some Forex traders who take longer term positions based on these fundamentals, the majority of individual traders take a much shorter term view.

Trading Forex can be very rewarding, with George Soros and Joe Lewis having both made a billion dollars in the space of the signal day when they correctly prediction that the price of the British Pound would collapse. These potential rewards are what attract many to trading Forex, however there are also substantial risks to trading foreign exchange meaning individuals aren’t recommended to trade more than they could afford to lose.

How to trade Forex Online

Forex has become one of the most popular instruments for individuals who wish to try their hands at trading the financial markets. This is partly due to the fact that the Forex markets operate 24 hours a day during the week meaning that people can trade around their work and family commitments. Individuals who in the finance are commonly referred to as retail customers are able to trade the Forex markets directly or through a number of different instruments. In the United States a retail trader is really limited to margin trading, which involves trading Forex directly but with the trader being only required to provide a portion of the funds up front. Those elsewhere however have a wider range of choice when it comes to trading Forex, for example those in Europe can trade Forex through use of several different financial derivatives. The most popular being the Contract for difference ( CFD ) , which has the advantage of allowing a customer to achieve significant amount of leverage allowing the trader to take on much larger positions than he normally would be able too. Increasing both the rewards and the risks associated with Forex trading. Another way to trade Forex and one which is growing in popularity is to use Binary Options, which offer a fixed pay out and just require that you predict whether the price will rise or drop in price over a given time period.
All in all, the Foreign Exchange markets offer an exciting prospect to those who want to try their hand at trading. The fact the Forex markets operate 24 hours day which allows many to access and trade the markets around their other commitments. This combined with the fact that there are a number of different instruments which allow the average person access to the financial markets. The potential to make great returns of their investment is what attracts many to trading Forex, however there are also substantial risks involved as well.

Educational Video about Forex

John Walker

John Walker

Editor at Tradingbroker.co.uk
John was born in London ( United Kingdom ) and studied at The London School of Economics. Currently he lives in Sydney ( Australia ) and he works as editor at Tradingbroker.co.uk.
John Walker

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Risk Warning: Online trading always holds an element of risk a it's not recommended for all investors or traders. Before deciding to trade you should evaluate your investment goals, your experience and risk propensity. You need to know there is a chance that you can lost some or all of your initial investment therefore you should avoid to invest money that you cannot afford to lose. In case of any doubts we recommend to seek advice from an independent financial advisor. ( check website www.fca.org.uk ) Trade at your own risk.
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