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Deciding If You Should Trade Forex or Invest Elsewhere




You may be familiar with the trading of stocks and shares, probably even heard of the futures market, but trading the FOREX (Foreign Currency Exchange, or FX) market is a relatively new for the private investor. FOREX was the domain of the banking industry (large banks have the ability to trade billions of dollars each day) along with the elite in financial and business circles. These days online trading platforms make it is possible for the average person to trade in the forex market. Trades are done electronically and are considered an over-the-counter (OTC) market. You are able to make a profit both on a rising and falling market, unlike the stock market, which relies on shares increasing in price to create profit.

The Foreign Exchange Market for buying and selling currency, is the largest financial market in the world. Every day more than $1.5 trillion is traded globally and, unlike the stock market, which has fixed hours, is available 24 hours a day. Six days a week somewhere in the world, at any time of day or night, FOREX is open for business. The market begins each day in Sydney and moves around the globe as other FOREX financial centers open: first Tokyo, then London and then New York.

In Forex currencies are traded in pairs, for example the Euro and the US dollar (EUR/USD). The base currency in this case is the Euro; the US dollar is the counter currency. All trades result in the simultaneous buying of one currency and the selling of the other. In this example, if you place an order to buy the EUR/USD, you are buying the Euro and selling the US dollar. If you were to sell the pair, you would be selling the Euro and buying the US dollar. There are many other currency pairs, such as USD/JPY, GBP/USD, EUR/GBP, USD/CHF and so on.

Price movements are relatively predictable, creating trends that can be anticipated when it comes time to buy and sell. When investing in stocks and shares the broker takes a commission reducing your profit, it is uncommon for a broker in the forex market to charge commission. In the forex market the broker makes their profit on the spread. It is highly recommended that you establish a demo (practice) account with a broker before trading for real currency. This is a great way to learn to trade and gain experience without loss of funds.

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