A Primer on FOREX Trading

Daily foreign exchange trading volume is $4 trillion. Forex, aka Foreign Exchange, helps determine the value of currency. Value is set by buyers and sellers in the 24 hour market exchange of currencies. Forex is conducted around the clock by many different participants, hedge funds, multi-national corporations, commercial banks. In the beginning of the new millenium PC technology opened the floor to everybody. It takes study be successful in forex trading. Experts say you have to stick to a plan. So you set your plan in motion and work it on the basis of a trading system that runs around the clock.

Potential traders must become familiar with trading concepts. Forex market websites supply online trading tools. educational videos, and sometimes one-on-one training via webinars, seminars and eBooks; plus there is a world of resources on the internet pertaining to technical analysis, market situations, currency announcements. Potential traders must also follow the money reports at major news outlets. The move into forex trading involves finding a trading platform on the web that works for individual traders on their PC or mobile at anytime, anywhere in the world -- the key is the forex market trades 24 hours a day. 


Neophytes will certainly want to work with support via phone, email and Live Chat. Once registered, the trader deposit funds into a trading account ($300 via credit card or email bank transfer). This is probably preceded by a few practice runs at the platform's introductory level. In fact it is essential to practice forex trading and a no-brainer to do it risk-free. Find a demo account that teaches novice traders. It is a fact that forex trading involves risk; no one should invest money they cannot afford to lose.


The learning curve isn't steep however. Just consider currency trading as another market where the goal is to buy low and sell high. Currencies appreciate and depreciate. Success in trading forex is in finding the difference between exchange rates of two currencies. The trading activity is going on with international banks and foreign governments around the globe operating in a 24 hour a day spot market. There is no central trading center a la stock exchanges. What does exist is a world-wide network dealing in currency in what amounts to over-the-counter trades.


Prices of currencies fluctuate since they are constantly changing or floating daily, and each currency is identified by a three letter code, eg.  United States dollar = USD, Japanese Yen = JPY , British Pound Sterling = GBP, Euro = EUR, and Swiss Franc = CHF. Currency rates are set by ratios of currency units of different countries relative to one another. Participants of the forex market are either buyer or seller. Buyer price is the BID and seller price is the ASK. Seller offers currency at a higher price, while buyer bids lower. Quotes in the forex market are thus given in BID/ASK pairs publicized by the chart which shows 'up' when BUY is profitable; SELL is the winner when the chart goes 'down.'


Forex currency trading today contains investors both small and large entering a lucrative market. With trading done on an Electronic Communication Network (ECN), registered currency traders offer insight into real-time trading activity and processing speed. While profits are made, losses commonly occur, thus it bears repeating that you only invest what you can afford to lose, and your first goal is to understand the risks. You must educate yourself in the game. 


A few words about who trades and invests. First is the Major Banks. Then Electronic Brokering Services (EBS). Then Medium-sized and Small Banks. Then Retail Market Makers, Retail ECNs, Hedge funds and Commercial Companies, then Retail Traders. The interbank market includes the world's largest banks and a few smaller banks, participants trade direct with each other or electronically through the EBS or Reuters Dealing 3000-Spot Matching. Competition takes place between EBS and the Reuters Dealing 3000-Spot Matching. They compete  for clients and market share. 


More liquid currency pairs on the EBS plaform include EUR/USD, USD/JPY, EUR/JPY, EUR/CHF, and USD/CHF. More liquid currency pairs on Reuters platform include GBP/USD, EUR/GBP, USD/CAD, AUD/USD, and NZD/USD.


Rates are like MSRP-sticker-prices on cars, more guidepost than reality. Rates depend on factors including the intricate CREDIT relationship established between the trading parties. Credit standing is based on reputation. Hedge funds, corporations, retail market makers, and retail ECNs do transactions via commercial banks and rates are higher and more expensive than the interbank market. Retail traders are the new kid on the block thanks to internet, electronic trading, and retail brokers. But the real learning begins now. The hope is that it's not entirely trial and error.