What is Forex?

Forex is an over-the-counter financial market where investors, institutions, and companies buy, sell, and exchange different currencies for business or profit purposes.  It is commonly referred to as FX, the currency market, the money market, or the foreign exchange market.

Where is the Forex market located?

Since Forex transactions are over-the-counter, currency trading takes place from any location in the world.  Great Britain, the United States, and Japan have the highest concentration of trading activity.

How large is the Forex market?

Due to online brokerage firms and improved Ad communication technologies, the popularity of the Forex market has dramatically increased over the last several years.  It is estimated that an equivalent of nearly 4 trillion United States Dollars is exchanged on Forex every trading day.

What are the benefits of over-the-counter trading?

Since Forex is an over-the-counter trading environment, regulatory bodies are less stringent.  This allows investors to trade with increased risk, leverage, and the possibility of higher returns with smaller account balances.  Unfortunately, due do less regulatory oversight, illegitimate brokerage firms and institutions occasionally exploit investors.  For this reason, it is important to do extensive research before investing with a brokerage firm.

When can I trade on Forex?

Since currency trading takes place throughout the world, it is open 24 hours a day throughout most of the week.  Trading begins at 8:15 PM (GMT) on Sunday, until 10:00 PM (GMT) Friday.  Unique from other financial markets, Forex investors can buy and sell positions when it is convenient for them.

How do I trade on Forex?

Currencies are traded in pairs of two.  For example, if you wanted to purchase or sell Euros with U.S. Dollars, you would look at the EUR/USD price quote.  The first currency (EUR) is always called the base currency, and it is the currency that is purchased or sold.  The second currency (USD) is always called the counter currency, and it is what the first currency is valued in.  EUR/USD = $ 1.2457.  If you believe a specific currency will go up in value against another currency, you would purchase that currency.  After the purchased currency appreciates in value, you will have more of the counter currency after your sell the base currency.  For example, if you purchase €10,000 (Euros) at a price of $1.2525 (USD), you would be required to pay $12,525.  If the value of the EUR/USD increases to $1.3012, and you sell your €10,000 position, you now have $13,012.  This trade resulted in a $587 profit. 

What is trading with leverage?

Most online brokerage firms require their account holder to trade with leverage. Leverage accounts permit traders to purchase a portion of a position or even to hold a market position beyond their current trading amount. Since leveraged positions are considerably larger than regular positions, they are much riskier and have the potential for large gains and losses.