What is Forex and How Does it Work?

FOREX stands for Foreign Exchange. It is a market where foreign currencies from all over the world are bought and sold. It’s primary characteristic is that it is the largest and most liquid market in the world. More than three trillion dollars are traded each and every day. There is no other market in the world like it.

Due to it’s massive size no one individual or entity has the capability to preferentially shape or influence the trades.  For that reason, underground information has minimal effect unlike the stock markets. It is a truly free flowing market and makes it the ideal trading environment.

Currencies in the Forex market are traded 24 hours a day 7 days a week. It never closes. Activity in the market actually follows the sun around the world. It moves from the banking centers in the United States to Australia and New Zealand, the Far East, to Europe and back to the States.

Trading in the Forex is about swapping one currency for another. You buy one currency and sell another. The currencies are exchanged based on the daily exchange rate (which change by the minute). You make your money by taking advantage of these changes in rates.

The foreign currencies are always traded in pairs – Euro to the US Dollar, the British Pound to the US Dollar, the German Mark to the Japanese Yen, etc. The dominant pairs involve the U.S. dollar, Australian Dollar, British Pound, Swiss Franc and Japanese Yen.

What makes this situation ideal for the trading home business is that the Forex is now available to small investors. Forex brokers today are able to do transactions in smaller unit lots. This gives small investors the ability to buy or sell currencies just like the large institutions.

Before getting too excited you must realize that the caveat to trading is that it can be expensive if you ignore learning something about the Forex market. You will have drawdowns (losses) as a cost of doing business but it can be minimized. Before you become a trader do your homework and learn the rules. Being ignorant can cost you money. Understand the risk before investing.

Are you really able to make money trading Forex? The answer is yes but only if you learn the basics and practice trading with a demonstration account before committing you hard earned cash. Trading is a business and your success is directly proportional to your commitment to increase your knowledge and experience.