Forex Trading: A Quick Lesson

If you're frustrated with the stock market, you may be wondering if there's money to be made in the Forex market. If you haven't had much exposure to the Foreign Exchange Market, though, it may seem beyond your reach. Let's take a quick look at the basics of trading on the Forex market.

The Foreign Exchange Market, or "Forex", is the largest market in the world. An average of three trillion dollars (USD) is traded every day on the Forex. This is the market where global currencies are literally bought and sold. This type of trading is, at its root, speculation on the changes in currency exchange rates.

These transactions aren't made on a central exchange like the stock market, but are done, instead, through an inter-bank market where short-term lending takes place between banks. They're made between two parties and traders are usually highly leveraged, meaning the amount they have in their broker deposit accounts is a small percentage of the amount they're actually trading.

The centers for this type of activity are global, with some of the largest being in New York, Tokyo, and London. Because that's true, this is a twenty-four hour market, and the practice of watching these markets and taking positions (buying or selling currency) around the clock is called "intraday Forex trading".

The centerpiece of Forex trading is known as a "cross", a transaction in which two currencies are bought and sold at the same time (for instance, EURUSD). Money can be made on the Forex by speculating on the "spread", which is the difference between the ask (buy rate) and the bid (sell rate) of a cross. This difference is measured by the "pip", the smallest unit of change in a Forex price quote.

Here's an example: because the trade in a EURUSD cross is quoted in four decimal places, Forex traders watch the fourth decimal point for change (the pip, in this case). So, if the quote was .8434 when you bought and is now .8439, the pip is 5. Watching the pip is how traders know how much money will be made by buying or selling currency.

Forex trading is most often done on the MetaTrader4 platform, which allows brokers and traders to watch market fluctuations. This program is widely available as a free download from the Internet, but it takes some training to set the variables you'll use to know when you want your broker to buy or sell.

Some companies now offer fully automated systems which, once the variables have been set by the trader, instruct the broker around the clock to take positions. These systems are based on the MetaTrader4 platform, and can be the best solution for anyone who doesn't have the time to constantly watch the Forex market.

If you're looking for an extremely liquid market that's open twenty-four hours a day, Forex trading just might be for you. Take the time to learn how Foreign Exchange Market trading works. Use one of the free "demo account" services offered online to try your hand at trading without financial risk.

When you're feeling confident, look for a broker that specializes in Forex trading and make your first deposit. From there, the sky's the limit, once you've mastered the nuances of the global currency markets.

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About the Author

+Chris Robertson is a published author of Majon International. All Rights Reserved. Copyright 2011 (Wed Apr 15 2009) Majon International. Majon International is one of the worlds MOST popular internet marketing and internet advertising companies on the web. Visit their main business resource internet marketing web site at: http://www.majon.com