Forex

FOREX stands for FOReign EXchange currency trading market, in which the commodity are the national currencies of different countries. Simply put, on the Forex market, investors exchange one national currency for another. Nothing is created or produced, just pure financial speculations, which could be quite risky and dangerous if you don’t know what you’re doing. The goal of any person involved in foreign exchange currency trading is to foresee which currency is about to go up relative to another one, so that he can buy it at when it’s low and sell when high. The difference would be his profit. On this market, you work with currency pairs – USD/EUR or JPN/CHF, etc. If you work with USD/EUR, then you would by buying USD and selling EUR, or the opposite, expecting that the value of the USD will increase compared to the EUR (in the first instance).

In order for you to fully understand foreign exchange currency trading, you must read a lot of books on this topic, and there are plenty of materials available online. Knowledge is power in the world of forex. Of course the purpose of this article is just to get you familiarized with the general ideas and terms.

The first term to get to know is “spread”. When you look at your forex software application, you will notice a table of all the major currency pairs and their respective values. The interesting thing is that there are two rates for all pairs – one of sell and buy, also called – bid and asking price. For example, you can buy EUR at 1.3419 USD, or sell 1 EUR for 1.3416 USD. The difference between those two values is called spread. Now, when you buy one EURO at 1.3419 USD (selling USD), you would want the Euro to go high against the dollar, so that the selling price would be more than 1.3419. The number of available currencies in the forex market is more than 20 and it continues to grow. But still, there are several currencies that are being traded the most - USD, JPN, EUR, GBP, CHF, CAN and AUS. These currencies are responsible for over 80% of all transactions and are referred by investors as “the majors”.

Leverage is another really interesting term to consider. Leverage allows an investor to make a transaction much larger than what his/her account can handle. For example, lets say you have a mini account with just $250 in it. If the leverage set by your online broker is 100 (this information should be displayed on their website), it means that you can make transactions worth $250 000! Hence, using leverage increases both potential winnings and losses.