Forex Trading 101: What Is Currency Trading

Have you heard about currency trading? Maybe you heard about somebody who made some money speculating on the foreign exchange market, and wondered what it was all about and whether you could make some money yourself. In that case, you need to know some facts about currency trading, or more generally, Forex trading.

The foreign exchange market, also known as Forex or FX for short, may be the oldest global trade market in the world. It is also the largest of all trade markets. Financial analysts have estimated that more than a trillion dollars is transacted on the Forex market in a single year. In contrast, one of the world’s largest stock exchanges, the New York Stock Exchange, handles several million dollars in trade every year. Of course, the Forex market has the advantage of being a truly global market. It is not an exchange that is centralized in any single place, and Forex trading takes place 24 hours a day and seven days a week, non-stop. You can say that Forex trading follows the sun around the globe as trading passes from one major bank to the next over every nation on Earth.

You may be wondering what commodity is being exchanged in Forex trading. Well, as the term “currency trade” implies, Forex trading deals with world currencies. A Forex trader buys and sells currencies by exchanging one denomination for another in an attempt to make a profit from the transaction. It is a speculative market, where world news plays an especially big part in the movements of prices, even more so than in other types of markets. But the mechanics of Forex trading are essentially the same as in any other market: one attempts to buy low and sell high.

Specifically, you need to determine what currency is very likely to appreciate in value against another currency. Then you do a currency trade, which just means that you exchange the second currency for the first one, which you expect to rise in value. If your information is correct, and the first currency does appreciate, then you end up with a profit. And then you do the same thing again. And again. And again.

Most of the trading in the Forex market is performed by brokerage companies, major banks, and government financial institutions. Individual traders, or retail traders, do only a small percentage of the total amount of trading. But the Forex market remains a welcoming venue for the novice investor, as it is relatively easy to get into and has little in the way of entry restrictions. Basically, all you need is a dealer who can perform the currency trades you want. You can find many such dealers online.