Forex Basics. Learn how to trade currency

  

  If you are a beginner in forex trading, this is the place to start. The following articles will help you gain an understanding of the forex market and how it works.

What is FOREX?

Forex is acronym of Foreign Exchange.This is also referred to as the FX, Spot FX or Currency market. All of these names are describing the very same market: foreign exchange market, the largest financial market in the world, with a volume of over $4 trillion a day. To realise how enourmous the foreign exchange really is you can compare it to the $25 billion a day volume that NYSE trades and also FX is 3 times the total amount of the stocks and futures markets combines.

This market has been founded since the 1970’s when currencies started to fluctuate. Even if the FX market has been around for such a lonog time,the market has opened to the retail public in 1990's and many market makers get established until 2000 or even after.Forex Trading is trading currencies from different countries against each other, so is simply the trading (exchanging) of money. It involves the simultaneous buying of one currency and the selling of another. The “exchange rate” is what you will see quoted. This determines how much currency that another currency can buy.You will read later that mainly the exchange rate is determined by the confidence that the world collectively has in a particular currency and depends on many factors such as:. their economical stability, political stability, consumer sentiment, the trend direction of these exchange rates, etc.In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country's economy, compared to the other countries' economies.

The Forex market hasn't a physical location,t'is considered an Over-the-Counter (OTC) or Interbank market because the entire market is run electronically, within a network of banks, continuously over a 24-hour period.In the begining only the 'big players' could play around this market.The initial requirement was that you could trade only if you had about ten to fifty million $ to start with!It was reserved basically for banks and big institutions but because of the rise of the Internet, online Forex brokers are now offering trading accounts to 'little players' like us. All you need to get started is a computer, a high-speed Internet dsadaconnection and a trading account to a forex broker.

How Does Forex Trading Work?

Forex trading is typically done through a broker or market maker. As a forex trader you can choose a currency pair that you expect to change in value and place a trade accordingly. Orders can be placed with just a few clicks and the broker then passes the order along to a partner in the Interbank Market to fill your position. When you close your trade, the broker closes the position on the Interbank Market and credits your account with the loss or gain. This things could happen literally within a few seconds.

Which Currencies Are Traded?

The table below displays the most popular currencies along with their symbols and the chart presents the currency distribution.

As you can see the most traded currency is the US Dollar being on one side of 86% of all transactions.Second comes EURO with 37% and then the yen with 16.5%.

Why trade foreign currencies?

We present you a few benefits and advantages you have when trading Forex:

Forex Volume and high liquidity - Greater volume means better fills on your orders (that means less slippage).Because the fx market is so huge, it is also extremely liquid.This means that with a single click of a mouse you can simply buy and sell instantaneous currencies and you will never get stuck in a trade.

No commissions - Unlike stocks,where you are charged twice with a buy commission and a sell commission,In the forex market there are no fees.Here you simply deal directly with the market maker, so you don't have to go through a broker and therefore you won't pay a broker commission.Brokers are compensated for their services through something called the bid-ask spread.This thing is a huge saving and allows you to get into profitability much sooner.

No middlemen - Spot currency trading eliminates the middlemen, and allows you to trade directly with the market responsible for the pricing on a particular currency pair.

24 Hour trading - you can literally trade forex anytime 24 hours a day (Sunday evening through Friday evening). This is very good for those who want to trade on a part-time basis, because you can choose when you want to trade--morning, noon or night.

Leverage - In forex trading, with a small margin deposit you can control a much larger total contract value.For example, Forex brokers offer 200 to 1 leverage, which means that a $50 dollar margin deposit would enable a trader to buy or sell $10,000 worth of currencies.

Free Demo accounts,news,analysis and charts - Many online forex brokers now offer free demo or practice accounts with charting and news services.It's a very good oportunity for beginners to practice and trade virtual money before opening a live trading account and risking real money.

“Mini” and “Micro” Trading - Online Forex brokers offer "mini" and “micro” trading accounts, some with a minimum account deposit of $300 or less.This thing makes Forex much more accessible to the average individual who doesn't have a lot of start-up trading capital.

How do I start?

To start trading forex you will need a computer with a high-speed Internet connection and a trading account to a forex broker.We recommend you to start with a mini or a micro account first,at least $1,000 for a micro account and at least $10,000 for a mini account.

For more information about forex basics we recommend you to visit our free forex e-books or forex books sections of our site OR you can choose one of the following books from amazon.com

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