An Explanation Of How Forex Trading Works
By Ray Caran
I had recently become interested and therefore started reading about buying and selling currency.
It's called Forex Trading. Like most folks I have read about huge possible profits in buying and selling different nations currency.
I searched many forums where a lot questions were asked about this investment system. I remember thinking that most questions were basically what is Forex Trading and how does one make money from it?
It was then I decided to write this article and explain briefly what it is and how it could be used. If this investment system interests you I suggest you research further before investing your money.
WHAT IS FOREX ?
The Foreign Exchange, called "Forex" market, is the largest financial market in the world, with over $1.2 trillion changing hands every single day. It is many times larger than the New York Stock Exchange.
What is traded on the Forex Exchange? The easy answer is money. Forex trading is where the currency of one nation is traded for that of another. Therefore, Forex trading is always traded in pairs. The most commonly traded currency pairs are traded against the US Dollar (USD).
The major currency pairs are the Euro Dollar (EUR/USD); the British Pound (GBP/USD); the Japanese Yen (USD/JPY); and the Swiss Franc (USD/CHF).
Because there is no central exchange for the Forex market, these pairs are traded over the telephone and online through a global network of banks, multinational corporations, brokers and currency traders.
BENEFITS OF FOREX TRADING:
LEVERAGE: When you trade in the Forex market, a small margin deposit can allow you to control a much larger total contract value. Leverage gives the trader the ability to make very nice profits and at the same time keep the risk of losing your cash to a minimum.
LIQUIDITY: Because the Forex Market is so very large, it is normally very easy to sell and turn your trade to cash. This means that by clicking your mouse you can quickly buy and sell.
PROFIT IN BOTH 'RISING' AND 'FALLING' MARKETS: One of the most exciting advantages of the Forex market is the ability to generate profits whether a currency pair rising or falling.
24HRS: From Sunday evening to Friday Afternoon EST the Forex market is open for business.
DEMO ACCOUNTS: These are available so you can practice without the chance of losing any capital.
In Forex Trading, there is a bid price and an ask price, and the difference of the two is called the spread. The bid is the price at which buyers are willing to buy, and the ask is the price that sellers are willing to sell at any particular time.
The prices are always 5 digit numbers, and it doesn't matter where the decimal is placed. For example, GBP/USD (British Pound) has a bid price of 1.3745 and an ask price of 1.3748, thereby yielding a 3 pip spread.
A long position is a trade when the investor buys a currency at one price, with the expectation of selling it some point in the future at a higher price.
A short position is one in which the investor sells a currency with the expectation of buying it back at a lower price, expecting the currency to fall.
If you have found this subject at all interesting I suggest you research Forex Trading and really understand this format before investing.
You will find some very exciting systems available that will put your Forex Trading on auto pilot.
About the author
If you would like to read about one of those Autopilot systems: Go here Forex Profits While You Sleep from http://www.FreeArticlesAndContent.com
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