Forex trading is also known as Forex currency trading. Trading Forex involves the buying and selling of currency pairs such as the EUR/USD, etc.
Trading is different than investing as it is typically much shorter term in nature. A Forex trader may enter and exit a trade in as short as a few seconds or is long as several months.
Trading the Forex market has become extremely popular for a number of reasons. One of the biggest reasons is that they are is tremendous liquidity in the Forex market. Liquidity makes it easy for traders to enter and exit trades.
Another big factor in the popularity of the Forex markets as leverage. Whereas the typical amount of leverage we may have in any stock trading margin account is 2:1, leverage can be as high as 200:1and Forex. We can now take a look at a quick example. Buying 100 shares of a $10 stock without margin would cost $1000. If we wanted to use margin we would actually have to have the $1000 in our account and use a 2:1 margin to buy 200 shares of the $10 stock. In Forex trading that same $1000 easily control a contract valued at $100,000.
Another reason for the growing popularity of Forex trading is the growing number of online Forex brokers. This makes it particularly easy for any of us to trade from the comfort of our own home or even on a lunch break at work.
Low relative transaction cost are yet another reason for this increased popularity. The transaction costs in Forex is relatively low compared to the contract value. When this situation occurs it is possible for traders to still maintain good profit profiles while trading frequently. This is, of course, why day trading Forex is extremely popular amongst traders.
