While many people are familiar with trading stocks and bonds, there is another kind of trading exchange that happens 24 hours a day, all week long. Foreign Exchange Trading, or Forex, is defined as the simultaneous buying of one country’s currency, and selling of another country’s currency. The currency of one country is exchanged for that of another in hopes of making a profit.
The currencies are always traded in pairs such as US Dollar/Japanese Yen (USD/JPY) or Euro/US Dollar (EUR/USD). More than 80% of daily Forex trading involves trading of the 7 “Majors” which are considered the biggest and most liquid currencies; the US Dollar, the Japanese Yen, the Euro, the Swiss Franc, the British Pound, the Australian Dollar, and the Canadian Dollar. There is no actual physical exchange location for trades, unlike the NYSE. Instead, it is a 24 hour market where trading moves from major banking centers like Wellington, Sydney, Japan, London and New York throughout the day.
When trading Forex, just as with stocks, there is a bid price and an ask price. The difference of the two is called the spread. The bid price represents the price at which buyers are willing to buy, and the ask price represents the price that sellers are willing to sell. The idea is to make a transaction when one currency is on the up and another is going down. If you choose the right currency, you will make a profit. There are two different ways to go about Forex Trading. A “long” position means the investor will buy a currency at one price, with the expectation of selling it later at a higher price. A “short” position means the investor will sell a currency with the expectation of buying it back at a lower price hoping for the value of the currency to fall.
Trading on the Forex Market can be quite profitable, indeed. One of the best aspects of the Forex Market is that is that it is considered to be a “perfect” market and free of insider trading and market manipulation. This makes it very appealing to most people as a choice over trading stocks and bonds. If you are a beginning, make sure to educate yourself on the ins and outs of the market. Do your research or take a Forex course to help you know the best ways to go about trading currencies to make a profit. As with any trading, there are risks involved, so it’s important to prepare yourself with as much knowledge as possible before you ever make your first trade.