How Does Forex Currency Trading Work?

If you didn’t know this already, The word “Forex” stands for: Foreign Exchange. The Foreign Exchange is the exchange of one currency for another . Hence, Forex currency trading is the exchange of a foreign currency . The Forex trader makes his or her profits from timing the market as to get the most he possibly can of one currency by exchanging it for another.

It hasn’t always been so easy for the independent trader to get into the Forex trading market. Before the barriers were broken down and tossed aside in the Forex market, smaller investors who wanted to compete in Forex currency trading couldn’t.

For years, the Forex market was only for the banks to make their profits, the little guy just didn’t have the tools or the funding to play in this game.

By now, when you surf the Internet and see the word Forex, you have no doubt, come across the term “currency pairs” as well . All you need to know is that Forex trading is about trading currency pairs . You are taking pairs of currency – and they are always in pairs, never singles – and you’re either buying those currencies or you’re selling them.

There are some currency pairs that are traded more often than others, otherwise know as “majors.” If you are serious about becoming a successful Forex trader you will need to know alot about these currency pairs.

You should learn as much as you can about all of the currency pairs but, try to focus on the “majors” or the ones that are traded most often, trade only those currencies you have become knowledgeable enough to trade .

Your strategy should be to buy the currency that is making it’s move higher then the other currency. It’s sort of like a horse race . When you bet on a horse at the track, you take a look at it’s history, the competition and then bet on the one you think will win. The same principle applies to Forex currency trading. Pick the currency pairs that are going to make you a winner.

How do you know which currency is going to come in the winner? Study, you’ll have to study your charts and trends until your eyes burn. A strong trend is what the banks knew and followed in the beginning when other smaller investors weren’t trading and the trend is what you need to follow as well in Forex currency trading.

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Beginning Forex Currency Trading

Foreign exchange (forex) currency trading, the largest financial market in the world, requires a minimum of capital to invest and the profits can be substantial. Once you have learned the basics of forex, you’re on the way to making money through the simultaneous buying or selling of currencies. Forex trading is instantaneous; as soon as you click the mouse, it’s done. The most commonly traded currencies, easiest to liquidate, are the U.S. dollar, Japanese yen, British pound, Swiss Franc, the Canadian dollar, Australian dollar, and the Eurodollar.

Unlike the stock market, forex trading has no central exchange. With forex, you can make a profit whether the market is up or down vs. only making money when the stock market is on the rise. By taking the long position with a pair of currencies, the forex trader buys at one price and sells when it reaches a higher price. The other option for the forex trader is to go short by selling currencies, anticipating depreciation, and then buying back when the value falls. The forex trader can pick either direction, long or short, and if correct, he will generate a profit. You can also set up a certain point (limit order) based on the amount of profit you want to earn to automatically limit the order. In the same way, you can stop or close an order to automatically liquidate if the currency trade is going against you.

In general, the strength of a country’s economy determines the value of its currency. Other factors to take into consideration in forex trading are the political and social status of the country, interest and employment rates, and the overall stability of its government. You will learn to see patterns or trends as you become more familiar with the in’s and out’s of forex trading.

The Forex market is a 24-hour trading place, Sunday through Friday, giving you the option of trading at any time of the day or night. Unlike the stock market, it doesn’t close with the ringing of the bell. Forex online firms provide demos, guidance, and market news for the beginning investor. You can practice your skills in forex trading before actually investing real capital. Once you’ve learned the basics, a minimum investment is made, sometimes as low as $200.00. These “mini-trading” accounts are a good way to begin forex trading and often there is no commission attached to your trading. You don’t have to be a seasoned market analyst or economist to learn, enjoy, and make money with forex currency trading.