Forex currency trading is becoming increasingly popular as more and more traders want to take their shot at the largest trading market in the world. The lure of nearly trillion in trading going on each and every day is too much for most traders to resist.
So what is the Forex market, and how does currency trading work? Forex is an abbreviated term for foreign exchange market. The Forex is the largest financial market in the entire world, with an average trade volume of nearly two trillion dollars per day. The modern Forex market is what evolved from initial currency trading.
The idea is to use fluctuating currency rates to make money out of money. For example, let’s say you buy one mini lot (1 mini lot = 10,000 currency) of the EUR/USD at a rate of 1.1500. Two days later the markets shift and the EUR/USD is now 1.1525, and so you decide to sell. Using the formula to figure out profits/losses, 1.1525-1.1500 is .0025 * 10,000 (the size of the mini-lot) = . In this case, a 0 investment for one mini lot yielded a profit, or 25% in only two days. Not a bad percentage by any count. That’s quite a profit for two days.
This is a simplified example, and as with any trading there is always the chance of loss, but this gives you an idea of what traders are shooting for when investing in Forex currency trading and why the potential for profits is so high. Forex currency trading is conducted using “pairs.”
The reason for this is that to trade Forex you are basically simultaneously buying one of the currencies, while selling the other. If you are selling the EUR/USD pair, then you are selling Euros in order to buy dollars.
Let’s use the earlier pair as an example. If you are trading the Euro versus the US Dollar, your currency pair is EUR/USD. The Euro (EUR) is referred to as the base currency while the US Dollar (USD) is referred to as the cross currency. The base currency is the one you are selling, while the cross currency is the one you are buying.
There always has to be a pair. To buy one currency, you have to do it with another. To sell a currency, you need to get your profits back in another. There must always be two currencies in any Forex currency trading.
The far majority of the Forex trading done in the world takes place between eight currencies: the United States Dollar (USD), Australian Dollar (AUD), Great Britain Pound (GBP), Canadian Dollar (CAD), Swiss Franc (CHF), Japanese Yen (JPY), and the Euro (EUR). Other nations’ currencies may be used, but these are the currencies that are most often used and profited from because they have the most demand and come from the most stable economies.
I hope that gets you started into learning about Forex currency trading, but you should know that you will always need a good proven system to make a profit in this volatile market.
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