Basic Introduction to Forex

Forex is short for foreign exchange. If you have ever travelled to another country and changed currencies, you have participated in foreign exchange. You have probably noticed how the exchange rate changes from day to day, and even from hour to hour. When you arrive in the country, the first thing you do is look for a booth that says "CHANGE." You give them your Dollars (or whatever your home currency is), and they give you Euros (or whatever the currency is of the country you are visiting) at whatever the current exchange rate is. Congratulations, you have just participated in foreign exchange.

When your trip is over, you go to the "CHANGE" booth again to trade your foreign currency back into your home currency. You probably notice that the exchange rate has changed again. It may cost less in the foreign currency to buy dollars back, than you received in the foreign currency when you first sold your dollars. You have received a return on your foreign exchange, essentially making free money just by having changed currencies. This is what happens on the foreign exchange market, and traders make money simply from changing currencies, the way you did on your international trip when you exchanged money to the foreign currency and back.

On the Forex market, traders buy and sell currencies many times over a very short amount of time, taking advantage of fluctuations in exchange rate. These fluctuations in rate are usually very slight, so many people who are just getting into their trading education do not realize that there is actually good money to be made in foreign exchange. The reason so many traders are making their fortunes on Forex is because of the leverage.

When you trade on Forex, you can trade on margin, using enormous amounts of leverage. What this means is that for every $1 in your account, you can make a trade of up to $500, depending on your account. With $100 in your account, you can conceivably control a trade of $50,000 or $100,000. The gains are potentially enormous in this system, but the losses are also potentially very large. This is why new investors who are looking for a trading education should seek out a trading mentor, and get a lot of practice in fake trades before putting real money into an account. There is an excellent trading education program on this website that allows you to learn foreign exchange skills and strategies, and to gain confidence in practice trades before you begin trading with real money. In foreign exchange, the best risk reduction is a good trading education.

Another reason traders love Forex, besides the large amount of leverage that they can access, is the fact that it is always open. Forex gets an investor into trades all over the world, and there is always a major market open, 24 hours a day. If you invest in the stock market, you know that the prime trading happens during the work day, when the major stock markets are open. If you want to trade after work, or in the middle of the night, there are some trading venues available, but hardly anybody will be trading at those times, so it is harder to make deals. With foreign exchange, you can trade before work, after work, on your lunch break, or at 3 AM, and there will always be a large number of traders worldwide ready to take your bids. This is also useful for people who are wanting to learn to trade full time, because you will not be ready to quit your day job until you have accomplished quite a bit of trading education, but you need to be able to do a lot of practice real-time on real markets in order to gain the skills to trade full-time.

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