Forex Trading for Beginners

Forex trading refers to stock trading on the foreign exchange ("FX") market. This involves trading in the different forms of currency that are in circulation around the world. If you've heard about people making their fortunes on the FX, you might be tempted to just jump into this exotic and exciting market.  While there are potential financial benefits, there are many risks.  It's important to first learn the basics.

A Quick Look at Forex Trades

There are an astonishing 1.5 trillion (plus) Forex trades every day. This represents a hundred times more activity than the New York Stock Exchange or NYSE. Forex trading takes place 24 hours a day, seven days a week, with trading centers in major cities like Sydney, Australia; London, England; New York City, United States; Tokyo, Japan and more.

Forex trading is primarily speculative. With the international market and constant activity, trading is not conducted through a central exchange like the NYSE.  Rather, Forex trading occurs on what is referred to as the "interbank" or "over the counter" (OTC) market. Forex trades are made directly between the buyer and seller by phone or through an online network.

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Currency Trades

The most common trade that occurs in Forex trading is called a currency trade. This means a trade in which one currency is sold and another is purchased at the same time. The two types of currencies together are referred to as a cross. The most popular currency trades are majors and these include USDJPY, USDCHF, EURUSD, and the GBPUSD. Currency trades can be very profitable.

Conclusion

Forex trading is a lot different from trading on the NYSE, Dow, or S&P 500. As an investor, the temptation to jump into the Forex market may be quite high because of the profit potential.  However, make sure you understand the market thoroughly before you risk any major cash.

"Forex Trading for Beginners" contributed by Geoff Smith