Forex Trading Introduction Information

The introductory articles and various other contents on these pages are intended to help you understand forex trading basics. They are not intended to be definitive, and they are not necessarily compatible with your trading techniques, methods and goals. You should make an independent judgment as to whether techniques or methods described on these pages are appropriate for you in light of your financial condition, investment experience, risk tolerance, and other relevant factors.

Forex Market

Forex (Foreign Exchange) is the name given to the "direct access" trading of foreign currencies. With an average daily volume of $1.4 trillion, forex is 46 times larger than all the futures markets combined and, for that reason, is the world's most liquid market. In the past, forex trading was limited largely to enormous money center banks and other institutional traders. But in just the past few years, technological innovations and the development of online trading platforms allow small traders to take advantage of the significant benefits of trading foreign currencies with forex.

In contrast to the world's stock markets, foreign exchange is traded without the constraints of a central physical exchange. Transactions are instead conducted via telephone or online. With this transaction structure as its foundation, the Foreign Exchange Market has become by far the largest marketplace in the world.

Unlike other financial markets, the foreign exchange market has no physical location and no central exchange. It operates through a global network of banks, corporations and individuals trading one currency for another. The lack of a physical exchange enables the forex market to operate on a 24-hour basis, spanning from one zone to another in all the major financial centers.

Buying and Selling

In the forex market, currencies are always priced and traded in pairs. You simultaneously buy one currency and sell another, but you can determine which pair of currencies you wish to trade. For example, if you believe the value of the euro is going to increase vis-á-vis the U.S. Dollar, then you would go long on EUR/USD instrument (currency pair). Obviously, the objective of forex currency trading is to exchange one currency for another in the expectation that the market rate or price will change so that the currency you bought has increased its value relative to the one you sold. If you have bought a currency and the price appreciates in value, then you must sell the currency back in order to lock in the profit. An open trade or position is one in which a trader has either bought / sold one currency pair and has not sold / bought back the equivalent amount to effectively close the position.