Forex Trading is trading currencies from different countries against each other. Forex is acronym of Foreign Exchange.
For example, in Europe the currency in circulation is called the Euro (EUR) and in the United States the currency in circulation is called the US Dollar (USD). An example of a Forex trade is to buy the Euro while simultaneously selling US Dollar. This is called going long on the EUR/USD.
The global Forex markets consist of the currency of every country, and are traded 24 hours a day, 5 days a week. Forex traders can operate from anywhere, even from home. The busiest time for Forex trading is when the USA session is just opening and the European session is closing, which is between 13:00 and 17:00 GMT. Currency prices move up and down very quickly during this time, which creates both opportunities and risks.
The fundamentals of Forex are not complicated; you buy a currency when it’s low, sell when it’s high, and take a profit. You can also make a profit by selling high and then buying low. This is called short selling, to find out how it works there are a variety of books and online educational materials that you can look at to learn more. It takes time and practice to learn how to predict fluctuations in currency values and become successful in Forex. Many indicators can affect the price of a particular currency in relation to its value against other currencies – from national economic outlook to political change. A Forex trader learns how to read these indicators and traders have access to a huge amount of educational material on the web, as well as and other resources that can be used to develop their knowledge, including Admiral Market’s education section.
Forex is usually regarded as high risk for private investors, but in this current economic climate it is becoming a more attractive option. Forex is not for the faint of heart, but a skilled investor with the right tools and the right knowledge can be successful.
Forex has built-in advantages over other types of investment. In the Forex market, an investor can gear up or ‘leverage’ in a way that is not possible in most other asset classes.
Think about buying a house. Generally, you may put down between 10 to 20 percent of the overall price of the house. The rest of the money you borrow from the bank. Suppose you buy a house worth $100,000. You put down $20,000 and borrow the rest from the bank. Then suppose the price of that house goes up to $120,000 in six months, which is very possible in a rising market. You can then sell the house and double your money.
Forex works in the same way, only more so. With foreign exchange you can control sums of money up to 500 times larger than your initial investment.
Forex has other advantages over other types of financial instruments. Investors can enter the market with much smaller amounts of money, can sell out easily, and can short sell.
The retail Forex market has grown rapidly in the past few years and it is the fastest growing financial area. In the European Union, Forex is closely monitored and tightly regulated. One of the reasons why Forex is growing so fast is because software has revolutionized the industry in the past few years. Nowadays it is easier to execute trades, and traders have a better feel for what to do and when to do it. Forex traders now have the tools and knowledge to make better decisions at the right times, and managing risk has become essential for every serious trader.
The need to exchange currencies is the primary reason why the Forex market is the largest, most liquid financial market in the world. It dwarfs other markets in size, even the stock market, with an average traded value of around U.S. $2,000 billion per day. (The total volume changes all the time, but as of August 2012, the Bank for International Settlements (BIS) reported that the Forex market traded in excess of U.S. $6.9 trillion per day.)