What is Forex Trading?

The forex (shortened form of the term 'foreign exchange') market is a non-stop cash market where currencies of nations are traded. Foreign currencies are constantly being bought and sold across global and local markets. Traders' investments increase or decrease in value based upon movements in currency. Real-time events may cause changes in forex market conditions.

The main attractions of forex trading are:

• 24-hour trading, 5 days a week

• A huge liquid market, making it easy to trade most currencies

• Many profit opportunities due to volatile markets

• Leveraged trading with low margin requirements

• You can profit in both rising or falling markets

• Risk control in standardized

• Options available for zero commission trades

In forex trading, the investor's aim is to profit from foreign currency movements. Forex trading is done in currency pairs. For example, the exchange rate of EUR/USD on Aug 25th, 2003 was 1.0846. This number is also referred to as a "forex rate" or just "rate" for short. If the investor had bought 10,000 euros on that date, he would have paid 10,846.00 U.S. dollars. One year later, the forex rate was 1.2082, which means that the value of the euro increased in relation to the U.S. dollar. The investor could now sell the 10,000 euros in order to receive 12,082.00 dollars. Therefore, the investor would now have USD 1236.00 more than what he had one year earlier.

When trading forex, trade only when you expect the currency you are buying to increase in value relative to the currency which you are selling. If the currency you are buying does increase in value, you must then sell back the other currency in order to lock in your profit. An open position (also called an open trade) is where a trader has sold or bought a particular currency pair and has not yet bought or sold back the equivalent amount to close the position.

It is estimated that 75%-90% of the forex market is speculative, i.e. the trader that bought or sold the currency doesn't plan to actually take delivery of the currency; rather, they were only speculating on the movement of that particular currency.