Forex Trading for Dummies

Currency trading can be a fascinating and profitable field of investment for those who learn the market well and have access to brokers offering good guidance. Through education and experience the currency market, or “forex” (FX) for short, can offer widespread investment opportunities that are often as good or better than the traditional stock market offers.

What is Currency Trading?

The currency market continues to grow in size, even though it is already the world’s largest investment market. There is literally trillions of dollars in average daily turnover, in contrast to the mere billions in daily volume that occurs on the New York Stock Exchange. It is a 24 hour market (excepting weekends) consisting of three trading sessions that include the United States, Europe and Asia. Unlike the stock market, in which investors deal in single stocks, currency trading is done in pairs, buying one while selling another. The trick is to make these exchanges profitably. Currency markets are influenced by the same factors as the stock market, such as supply and demand, interest rates, economic data and world events.

How to Succeed at Currency Trading

Just as with the stock exchange, in currency trading there is no automatic formula for success. With currency trading you need to follow the market closely and thereby learn the way various currencies typically respond to specific events and economic and political developments. Just like you would want to know something about the businesses in which you are buying stock, so you would want to know the economic and political factors influencing a specific currency. Many investors find this monitoring of the world currency markets fascinating.

The Importance of Early Guidance

Fortunately the currency trading market is easy to learn, but the strategies for making money consistently requires a combination of both experience and good advice. The regular use of an experienced forex broker is highly recommended in the early stages of entering this market so that you can be warned away from common and potentially expensive beginner’s mistakes. Once you gain enough knowledge and experience you can determine what investment strategy works best for you. Many investors find that currency trading is more interesting and exciting than the New York Stock Exchange, with as many or more opportunities to profit financially. It is certainly worth talking with a forex broker to help to determine whether the currency trading market is right for you.

The Foreign Exchange Market

A exchange of one type of currency for another has been in place since ancient times. Today we use the foreign exchange market is a form of exchange that occurs when different countries wish to trade international currencies. This market determines the values of all the different currencies around the world. Since the market value of a specific currency fluctuates everyday there are financial centers around the world to help keep track of the quickly changing environment. These centers act as strong anchors that help add stability to the large range of buying and selling that occurs in the market. This system, that has been developed over time to be as fool-proof as possible, is a major part of the overall world economy. Without the foreign exchange market, there would be no documented out of country conversion value for any currency.

  • Using a currency conversion is one of the ways that the foreign exchange market assists international trade. If you have ever traveled to another country one of the first things you do when you get there is convert your money.
  • This system, which is changing all the time, also permits a business on one side of the world import goods from the other side of the world even though they may have different currencies.
  • There are many ways to check and see what the current conversion rates are; the most common way being online, where up to date currency conversions are always waiting. However you can call many financial centers or banks to get the information that you are looking for.

There are millions, if not billions of international transactions every day that require the use of foreign exchange and currency conversion. During the 1970’s such exchanges took a large amount of time to complete because of the lack of high-speed technology and the fact that the countries switched from having a fixed exchange rate to a floating, or changing, exchange rate. Today a normal transaction is fairly quick and is solely comprised of one party purchasing a quantity of one currency while paying with another type of currency. Since there is always an automated exchange rate this process runs smoothly and can be done almost instantly. The speed that a trade can be done is why some professionals make it their job to watch the ever-flowing market to make money every time there is a small increase in one currency. This could just as easily cause huge loss.

Forex trading made easy

If you ever wanted to know how currencies are traded in the world of finance, then you need to understand the business of Forex trading. Exchange of currencies between various nations of the world is an important and integral part of the global financial circle that we now live in. Did you know that Forex market is even larger than the stock market? Forex trading in the spot market has gained popularity in the past several years because it is the tangible asset on which futures and forwards markets rely upon but which do not actually trade currencies like the spot market does.

Currencies, like the stock market, have a real time exchange price and are traded on the Forex exchange (bought and sold in real time) in the spot market. Forwards and Futures markets only deal in contracts for any particular currency type, a price per unit, and a future date of settlement. In the forwards market, two parties on the OTC buy and sell contracts, and they have to decide on the terms of the deal by themselves. In the futures market, people can buy and sell contracts based upon a standard size and settlement date on public commodities markets.

In every case, it is a binding contract and settlement is generally done during expiration time in cash. Large companies and funds mainly deal with the futures and forwards markets while the retail trader in the forex trading world deals in the spot market only. Though big corporations use the futures and forwards markets to hedge against any unknown and volatile exchange rate fluctuations, speculators can get involved in the forex trading business as well. When a currency is quoted on forex, there is another currency that it is quoted in relation to, so the value of one currency is made visible through the value of the other currency.

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