Since the advent of the Internet in the mid-1990s, literally millions of small
investors now include some form of FOREX trading as part of their chosen
investment strategy. However, unlike maybe stock market investments, trading in
the FOREX market can, initially, be a little daunting. So what is the foreign
exchange market, and how can you include this as part of you investment
strategy? To Learn Forex, you'll need to start by taking some education.
Possibly the easiest way to explain FOREX trading is to ask if you have ever
travelled overseas on holiday and needed to change money? If so, without
necessarily knowing it, you have been involved in a foreign exchange transaction
- you have sold one currency in exchange for another. Forex Trading deals with
trading currencies in set pairs.
Although on a larger scale than walking into your local bank and asking to
change some of your hard earned Dollars for British Pounds or Euros to go on
holiday with, as an over-the-counter market the foreign exchange market is no
different. As a FOREX trader you will need to study your FOREX strategy and
determine whether or not you think a currency will appreciate or depreciate
against another currency.
Once you have determined this, if you are a bullish
trader you will then need to instruct your broker to either purchase more of your
base currency if you think this currency will appreciate. If, on the other hand, you
think your base currency will depreciate, as a bearish trader, you will instruct your
broker to sell this currency. The trader will then offer your currency for sale on
the foreign exchange market looking for a counter-trader(s) who wants to buy/sell
in your currencies.
After the sale/purchase has been transacted, your foreign
exchange account portfolio with your foreign exchange broker will be adjusted to
show this transaction.
One thing to keep in mind with forex currency trading is that unlike other
types of exchanges, such as stock exchanges or commodity exchanges, foreign
exchange trades do not occur an a trading floor but rather are transacted
between brokers either electronically or via the telephone.
As such, there is no transient exchange that you can easily identify with. Nevertheless, all major
business centres around the world trade daily in huge amounts of foreign
currencies and as such the FOREX market can possibly consider itself to be the
only truly global exchange market in operation today.
