Getting Started with Forex Trading – What it is and How it Works

The Forex (foreign exchange) trading market is the central marketplace where foreign currencies are exchanged. It is open 24 hours a day, 5 days a week (Sunday afternoon through Friday afternoon) and is the largest international trading market in the world. Any individual, company or country can trade currencies through this over-the-counter type of ‘liquid’ exchange that exceeds over $1.9 trillion a day in commerce deals.

Following is a simple explanation of Forex Trading so that you will have a basic knowledge of what it actually is and how it works before choosing whether or not to get started in this form of market venue.

Also referred to as FX, the main financial centers of Forex Trading are:

• New York, US
• London, UK
• Singapore, Asia
• Tokyo, Japan
• Hong Kong, China
• Frankfurt, Germany
• Zurich, Switzerland
• Paris, France
• Sydney, Australia

If you are interested in getting started with Forex Trading, aside from learning how it works, being able to recognize the terminology will be a definite asset to you in this endeavor. You’re most likely familiar with the way the United States uses the acronym ‘USD’ to define its currency. Well each of the countries listed above also have their own three-letter currency codes. These acronyms are also known as SWIFT or ISO codes:

• British Pound = GBP
• Singapore Dollar = SGD
• Japanese Yen = JPY
• Hong Kong Dollar = HKD
• German Dollar = EUR (European Euro)
• Swiss Franc = CHF
• French Franc= FRF
• Australian Dollar = AUD

There are many, many more of these codes for the numerous other countries that also take part in FX trading, but these are the main acronyms you’ll want to become familiar with initially.

Trading in the Forex market is always done in pairs. It’s basically trading one currency for another to make a profit – the simultaneous buying and selling of money. For example, if you were of the expectation that the UK dollar’s worth was going to rise above the US dollar’s value in the near future, then you would trade those currencies as a pair, i.e., GBP/USD. So the objective is, simply put, to increase the value of your money. In order to ‘lock in’ your trade so that you will benefit from a profit, if the value of the currency you traded for increases, you have re-sell it.

Put it this way, it’s like buying and selling stock in a sense. If you purchase a particular stock for a particular price, and then that stock’s value rises after you’ve purchased it, you would re-sell it to someone else at a higher rate, therefore making a profit on the original price that you purchased it for.

There are various ways to start trading in the Forex market. Options include individual trading, utilizing Forex trading software or trading through a retail Forex broker. It’s all a matter of personal preference in regard to which option you feel most comfortable and secure with.

You can actually take a dry-run experience in Forex trading to get your feet wet and decide if this type of market is actually even for you. Certain web-based companies offer you the opportunity to set up a free, practice account by registering on their site. This practice account remains active for an entire 30-days – plenty of time to help you decide – and provides you with 24-hour access to their Forex indicator system, $10,000 of ‘practice’ money as well as round-the-clock customer support. It’s a great, no-risk way to familiarize yourself with the workings of Forex trading and test out the market before getting started.