Learning to trade forex requires time to not only comprehend the wealth of information surrounding this powerful investment tool but also to design and implement a strategic plan that fits both the trader’s capital and goals.
Learning is always easier when you have the right resources to guide you. Visitors to our learning center will find easy to understand; tutorials, videos, articles, a complete glossary of terms and more. After you are comfortable with the concepts and information, open a demo forex account and learn how to trade successfully. Those trading principles will be easily transferred to your real forex account when you are ready.
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Introduction to Forex Trading
“Foreign exchange”, also called “Forex” or just “FX” is the trading of currencies. Forex is the largest market in the world; buying and selling all of the world’s currencies. More than 10 times the volume is traded on the forex market daily compared with all of the stock exchanges in the world, combined.The foreign exchange market, being the largest in the world, is not easily manipulated. The forex market operates 24 hours a day, 5 days a week (Sunday 5 PM EST to Friday 5 PM EST); a truly global marketplace. The internet has been a leading factor in the dramatic increase in forex trading since the 1990s. Individual traders are able to easily connect to the forex market from nearly any computer or device connected to the internet.
From 1946 to 1971, fixed currencies were the norm, through the Bretton Woods system. In the early 1970s the US made the choice of not continuing to fix the dollar at 1/35th of an ounce of gold. At this time the dollar was no longer fixed; ending the Bretton Woods system and the dollar became free-floating. A couple years later, after the 1973 Smithsonian Agreement, the majority of the world’s currencies became free-floating as well. These currency changes created an open market;which set the stage for foreign exchange trading and speculation.
Forex traders today, normally trade currencies through a forex brokerage which provides the trading platform to conduct transactions; there is no centralized exchange for forex. When a trade is made, it is transacted from one currency to another; there are always two currencies that are involved, also called currency pairs. For example, EUR/USD is a currency pair involving the United States Dollar and the Euro. One currency is being sold and the other currency is being purchased. The trader will hold the position (purchased currency) for a period of time anticipating that prices of the currencies will change in the trader’s favor.
Over the past decade, forex trading has become increasingly more popular since the foreign exchange market offers a number of advantages unavailable to investors elsewhere. The profit potential is a leading factor in the choice for investors to trade forex; however why would traders choose to trade forex over equities?
The forex market, as stated earlier, is a 24 hour per day and 5 day per week market. Forex is able to be traded nearly at any time of the day or night. There are very low commissions and tight spreads; minimizing transaction costs. The liquidity in the forex market is unmatched with any other market. Trillions of dollars traded each day make it very easy for traders to buy and sell their holdings, even in large sizes. Leverage is another advantage for forex traders; multiplying the trader’s profit even on the smallest moves in the forex market. The forex market is not as regulated as other markets are. This allows traders to short currencies without any limitations. Lastly, forex trading allows a trader to invest on an international scale giving individual investors easy access to investing in foreign countries without any type of foreign license or permit.