Forex trading is also known as FX, foreign exchange or currency trading and is simply the trading of one currency for another. For example, a trader buys the Euro & sells the U.S Dollar equivalent. It’s that simple, making money forex trading is another story, we will get to this later.
Forex – The World’s Most Liquid Market
Forex trading transactions take place on the forex market which is also know as the foreign exchange market. The forex market is the most liquid market in the world with trillions of dollars changing hands each and every day. Unlike stocks, there is no exchange or central location, instead forex is traded through an electronic global network of investment banks, brokers and institutions.
Forex Trading Spread
Currencies are quoted against each other, with the U.S dollar being the dominant currency traded. Eg. EUR/USD. After each pair, you will see a price, normally 2 prices, a bid, and an offer. Your forex trading broker will quote it like this EURUSD 1.1740(bid)/1.1741(offer). This means you can sell EURUSD at 1.1740 and buy it at 1.1741. The difference between the two prices is known as the spread. The tighter or closer together the spread, the better. Forex brokers like to play themselves against their competition by promoting their tight spreads.
Forex Trading Lots
Lots In forex trading, currencies are traded in lots. There is a mini, micro and a standard. A micro lot is 1000 worth of a specific currency, a mini lot is 10,000 & a standard is 100,000. For example buying 1 x mini lot of EURUSD means that you are buying 10,000 EUR & selling the USD equivalent.
When you travel overseas, you literally can exchange notes of one currency for another, but when you trade through a broker all this happens online. There is no physical exchange in forex trading, don’t worry you won’t be stuck with a bunch of foreign currency notes!
There are so many forex brokers out there now, check out Investopedia they have clear concise information on a selection of brokers. Always make sure you do your homework on your broker, make sure they are credible and regulated by the local industry regulator. Also, check past and current reviews through an independent firm such as Trustpilot.
Think you want to start trading. Find out why you should here.