What is Forex?

Forex, also known as FX, foreign exchange or currency trading is a market that is global and decentralized. The foreign exchange market is where all the currencies of the world are traded. With an average online Forex trading daily volume of $5 trillion the Forex market is the largest and most liquid market worldwide. Not even all of the world’s stock markets combined can compare to this. But of what relevance is that to you? Dig a little deeper into online Forex trading and you may uncover some exciting online Forex trading opportunities that are not readily available with other investments.

ONLINE FOREX TRADING EXPLAINED

In simple terms online Forex trading is the process of purchasing and selling currencies. However broken down online Forex trading involves a few aspects. One of the most important aspects being that of the exchange rate between a pair of currencies. Rapid changes can occur in a short period of time to an exchange rate sometimes within a matter of seconds. Generally the exchange rate of a currency determines how healthy an economy is as compared to others. For example :

If the US economy is not doing as well as the economies of the Euro zone, the euro will rise in comparison to the dollar (EUR<USD) and vice versa.

online forex trading

There are three ways in which online Forex trading can take place, these are as follows :

THE FORWARDS MARKETS, FUTURES MARKETS AND SPOT MARKETS

The future, forwards and spot markets are the three ways in which corporations, individuals and institutions conduct online Forex trading.

What is the spot market?

In simple terms the spot market is where the buying  and selling of currencies is correspondent to the current price. This price that is determined by demand and supply reflects several things  including the current interest rates, the performance of the economy, the realization of the performance comparison between currencies in the future and sentiment as regards to ongoing local and international political situations.

What about the forwards and futures markets?

The forwards and future markets are different from the spot market. The difference is that they do not carry out trading of actual currencies. Rather they deal with contracts that act as a representative of claims to a particular currency type. An exact price per unit and a date for settlement.

How do you actually make money with online Forex trading?

online forex trading

The basic rule for trading is “buy low, sell high”

Let’s use an example for better understanding;

Let’s assume you decided to purchase 1000 euros against the US dollar. Assuming that at that very moment the execution of the trade takes place immediately, 1.4500 is the exchange BUY rate for EUR/USD so you have to pay$ 1,450 in order to get 1.000 euros

At a later stage the EUR/USD SELL exchange rate (that is the rate to which you sell the euro for US dollar) will be 1.550. You then decide to sell your 1000 euros for $1550. Initially you had $1 450 but you now have $1550, meaning that you have made a profit of $100. The alternative to this would be the SELL exchange rate for EUR/USD being 1.3500. if you decide to sell your 1000 euros you would get $1 350. Having had $ 1 450 to start with, you now have $1 350 which means you have made a loss of $100.

This is how money can be lost or made with online Forex trading.

At the end of the day there is risk in online Forex trading. However it is those that take the risk that usually gain.

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