Forex Basics: An introduction

By: Yudi Hariyanto

The Foreign Exchange Market or known as FOREX is a world wide market for buying and selling currencies. Forex (currency Exchange) in the simple term is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY).

Forex market handles a huge volume of transactions 24 hours a day, 5 days a week. Daily exchanges are worth approximately $1.5 trillion (US dollars). In comparison, the United States Treasury Bond market averages $300 billion a day and American stock markets exchange about $100 billion a day.

There are two reasons to buy and sell currencies.

1. about 5% of daily turnover and governments that buy or sell product and services in a foreign country or must convert profit that made in foreign currencies into their domestic currencies.

2. The other 95% is trading for profit, or speculation.

The potential for profit exists because there is always movement between currencies. Even small changes can result in substantial profits because of the large amount of money involved in forex market. At the same time, it can be a relatively safe market for the individual investor. There are safeguards built in to protect both the broker and the investor and a number of software tools exist to minimize loss.

The FOREX is made up of about 5000 trading institutions such as international banks, central government banks (such as the US Federal Reserve), and commercial companies and brokers for all types of foreign currency exchange. There is no centralized location of FOREX – major trading centers are located in New York, Tokyo, London, Hong Kong, Singapore, Paris, and Frankfurt, and all trading is by telephone or over the Internet. Businesses use the market to buy and sell products in other countries, but most of the activity on the FOREX is from currency traders who use it to generate profits from small movements in the market.

Even though there are many huge players in FOREX, it is accessible to the small investor - thanks to recent changes in the regulations. Previously, there was a minimum transaction size and traders were required to meet strict financial requirements. With the advent of Internet trading, regulations have been changed to allow large inter-bank units to be broken down into smaller lots. Each lot is worth about $100,000 and is accessible to the individual investor through 'leverage' – loans extended for trading. Typically, lots can be controlled with a leverage of 100:1 meaning that US$1,000 will allow you to control a $100,000 currency exchange.

Forex trading is a really A true 24-hour market. Forex begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York.

Some advantages trading in FOREX.

· Investment in forex market is very liquid because of its size (very big volume). International banks are continuously providing bid and ask offers. The high number of transactions each day means there is always a buyer or a seller for any currency.

· The market is open 24 hours a day, 5 days a week and can be accessed anywhere. Trades can be done on the Internet from your home or office.

· It is an Open Market. Currency fluctuations are usually caused by changes in national economies. News about these changes is accessible to everyone at the same time – there can be no 'insider trading' in FOREX.

Brokers do not take commissions from their trade (commission free). They earn money by setting a 'spread' – the difference between what a currency can be bought at and what it can be sold at.

Five Reasons You Have To Start Forex Trading

Why should you consider foreign exchange, or forex trading? One compelling reason is that it is a huge business, trading nearly two trillion U.S. dollars on a daily basis. The potential to make money is out there for the well-informed trader. The forex market is the largest in the world. It is larger than the U.S. stock market, and has a daily trading volume larger than all the world's stock markets combined. The following list provides a few reasons why forex trading is a smart move.

It's Easy

If the idea of trading on the stock market is intimidating, you're not alone. There is no way that anyone, including professional brokers, can know enough about all the stock options. Therefore, many traders specialize or focus on particular areas of the stock market, and many individuals are left to rely on the opinions of the professionals, who may or may not be good at their craft.

Trading on the forex market, in contrast, is much simpler. The primary currencies traded are the U.S. dollar, the Japanese yen, and the British pound. There is less to keep track of, so conducting research and analysis can be much easier.

You Can Do it from Home

If you're interested in getting involved in forex trading, all you need is a computer and a bit of time. Granted, conducting some research is wise if you want to make the best choices. But once you have an idea of your strategy, you can conduct transactions online for minimal fees and without having to pay a professional to do it for you (although this is an option). There are a number of online options for trading foreign exchange, so you'll need to conduct some research to determine the best choice for you. If you know others who trade this way, ask for their preferences. Conducting a simple Google search on forex trading will yield many results, so review and choose carefully.

The Investment is Minimal

To get involved in currency trading, you do not need to invest a lot of cash upfront. Many trading options are available for a small investment, some as low as a few hundred dollars. This allows new traders in particular to get involved, learn the process, and risk very little. To trade in the forex market, you need to determine your risk limit, and not invest above that amount. Because the initial investment can be low, many people can get involved that may not be able to invest in other options, such as traditional stocks. Forex trading is a good way to enter the trading market.

You Can Make Money

While trading on the forex market takes some research, skill, and a bit of luck, it is possible to make money. The potential for huge payoffs is at times exaggerated, but there are traders making large amounts of money in this market. The key is to learn what you are doing and make smart choices. This can include determining how much you are able and willing to risk, taking risks when necessary, and learning as much as you can about the market. Trading on the forex market also offers you more leverage than in other markets. You can use smaller amounts of money to your advantage, and the trading process is simpler than in other markets.

It's Flexible

Trading on the Foreign Exchange market is a twenty-four hour process, which means that you don't need to wait for the opening and closing of the exchange to know where you stand. You can make trades at any time of the day, which gives you much more control than if you are operating in the traditional stock market. This also allows traders to respond to breaking news immediately. The advantages of real-time trading are advantageous in that traders have a much better understanding of their investments. Conversely, in the traditional stock market, after-hours activities, for example, can affect stock values, but the affects are not immediately available.

If you're interested in trading on the forex market, do your research. Many trading companies provide free information online. The more you know, the better you decisions you'll be able to make. Many of these same companies offer free trial periods as well, which you can use to get your feet wet and determine if currency trading is for you.

By: Mike Singh, check out another articles at forex made easy

Forex Trading – An overview

If domestic stock market fails to interest you any more, consider trying your trading skills in Forex. The forex or Foreign exchange is the ideal place for those traders who look for a little more adventure in their moneymaking games. The Forex trading involves the trading in all sorts of world’s leading currencies. The Forex trading refers to a simultaneous buying and selling of different currencies. The forex trading always involves the combination of two or more currency; that is you have to trade one currency in comparison to the other. The currency combination used in this international currency trade is known by the term, ‘cross’. As for example, the Euro/US Dollar, or the GB Pound/Japanese Yen and you can deal in literally limitless combinations. However, the most commonly traded currencies belong to the group of “majors” like EURUSD, USDJPY, USDCHF and GBPUSD.

Global Forex trading provides the investors and financial institutions a new financial playground in the backdrop of a volatile currency environment in this age of globalization and free market. With the base camps in the topnotch cities like New York, Sydney, Tokyo, London, and Frankfurt, the Forex market is a kind of OTC or over the counter market where trading takes place directly between the two counterparts. Unlike the national stock markets, Forex is not under the regulation of a central exchange; it is operated on the “interbank” market. You can trade in this 24-hour market over telephone, or over the global electronic networks. These are some of the reasons behind this enormous growth.

At the core level, online foreign exchange trading can be defined as the exchanging of one currency for another. It is a kind of 'spread ' trade where buying of one currency must be followed by the sale of the other. You have to buy one currency and sell another simultaneously. Online Forex trading system is described as an ergonomic process. A seasoned trader has great intuitive abilities. You can perform all the online trading functions from a single screen including placing a trade, leaving an order, position and order management, and margin analysis. The foreign exchange market traditionally belonged to such big shots as banks, brokers and big export Houses. But picture has drastically changed with the invasion of the market by the internet. Nowadays, more and more common people are participating in the trading in Forex market. Are you confident about your trading skills? Then you can also join the bandwagon of the big international investors. You will get all the necessary resources and information right in the Internet. Being informed is important as side by side of great money making potentials, the functioning of foreign exchange market is characterized by volatility, unpredictability and risk factors.

Trading in the foreign currency proves to be exciting and in most of the cases profitable. Those who become enormously successful in this field have the unique ability of locating the risk factors. With the all-invasive growth of Internet the monopoly of big investors in the forex market has ended. But before stepping in this volatile world of foreign currency trading a small time investor should always keep in mind the implications and pitfalls that this market is entailed with.

***You may use this article on your website as long as the two URLs are hyperlinked. Tania Penwell provides information on forex trading and other financial topics for Money Savvy - your guide to retirement savings, trading, taxes, and more. Article Source: http://EzineArticles.com/?expert=Tania_Penwell