An Introduction to Forex Trading

Forex or the foreign exchange market is where the brokerage firms, banks and traders are linked over the network, now mostly electronic, which lets them convert one currency into other .Of course forex trading is not as simple as it sounds. Forex is today as full fledged a profession/business as any other.

Forex market is world’s most liquid markets for the obvious reason that it deals in actual currencies. The market is also the largest with more than $1.5 trillion traded daily.
Forex trading has gained more significance in the last decade than ever before. Currency trading which was only limited to international government and commercial banks and companies has become increasingly accessible to the common man for private trading, and more so with the World Wide Web.

The majority currency traded is the US dollar in combination with the Euro, Bitish, Pound, Japanese Yen, Canadian and Australian dollar and the Swiss Franc. The forex market is characterized by it’s throughout working of 24 hours on weekdays. The actual trading does not take place in a place such as in the stocks and futures market. Thus currency trading is global.

The deal of currency involves buying one currency and selling another. Thus we have pairs of currencies like EUR/USD, USD/JPY etc. the first of the currencies in any pair traded is the “Base” while the other is the “quote” or counter currency. For Eg A trade is executed when the values of currency you purchased increases in comparison to the currency you wish to sell. The US dollar is one of strongest money in the world and it therefore found to be the base in most pairs. We often find the change for other currencies in terms of US dollars.

Contract size is one of the very vital terms in forex, which is normally a batch of 100,000.in other words, with each standard you are controlling 100,000 units of a base currency. Each Profit in Percentage, PIP , is therefore equivalent to $10. Mini accounts are also available , nowadays, for 10,000 units with each pip worth $1.

The next post will be about the major pairs traded and their characteristics. As also the risk element in forex trading.