A Short Introduction To Forex Trading


Foreign exchange trading which is also called Forex or FX is one of the most popular forms of trading around the world. The idea of Forex is simply to trade one currency for another in the hope that its value will rise and you can make a profit. If you have ever travelled out of the country and exchanged your home currency for the local currency this is essentially what Forex traders do. They just do it from their computer and in currencies all around the world. Successful foreign exchange trading is very difficult. Beginning trading without a solid know how and your finances will soon crumble. Simply understanding Forex is one of the biggest barriers to make profitable trades. For this reason Forex is considered to be a risky investment and should not be attempted by inexperienced traders.

How Forex Works

 

Currency exchange when travelling is one of the most common forms of foreign exchange. Although it is not necessarily done for profit the premise is the same. When you trade your currency at an airport or a local bank you may notice that they will have different prices for whether you are buying or selling a given currency. Also the exchange rates change very often so an exchange one day may yield more or less than an exchange for the same amount the very next day.

The difference in price when buying and selling at a local currency exchange is the same as the bid and ask in the Forex market. The bid price is the amount for which you can sell your currency and the ask price is the amount for which you can buy the currency. The ask price is always more than the bid price. The difference between the two is the spread. If there is a great difference between the ask price and bid price (a wide spread) then the currency is more expensive. This is because the spread is the amount that dealers take as a fee rather than a commission on the sale. The more liquid the currency pair is the narrower the spread will be. The spreads may change throughout the day, too. For instance when the London and New York forex markets are open at the same time there will be a very small spread between the GBP/USD pair since there is a lot of trading going on between the two.

The change is the amount that the currency is up or down on the day. Currency trading takes place 24 hours per day through trading centres located all over the world. The day starts at 9pm GMT, when it is early morning in Australia. Australia is the first market to open each day followed by Tokyo, London and then New York. The hours that markets are open overlap at some points creating a seamless 24 hour trading period. The trading week is from Monday when the Australian market opens until Friday at 5pm EST when the New York market closes for the weekend.

 

For more information about Forex Trading please have a look at "Forex Video Tutorial" and Investopedia.

 


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