The foreign exchange market (forex or FX for short) is one of the largest, most exciting, fastest-paced markets in the world. It seems to be easier to understand, compared to the stock market. Chances are you've already tried it when you've gone on a trip to another country and exchanged some money.



Historically, only large financial institutions, corporations, central banks, hedge funds and extremely wealthy individuals had the resources to participate in the forex market. However, now, with the emergence and popularization of the internet and mainstream computing technology, it is possible for average investors to buy and sell currencies with the click of a mouse from the comfort of their own home.

If you follow the value of a currency, such as the American dollar (USD), you will know that daily currency movements are usually very small. Most currency pairs, on average, move no more than 1 cent per day, which is less than a 1% change. Therefore, to make a respectable return, many currency traders rely on the use of leverage (using margin) to increase their potential returns for small moves in the exchange rate. In the retail forex market, leverage can be as high as 200:1 if you're trading with less than $50,000 or as low as 50:1. For example, to trade $200,000 worth of currency, if the broker is requiring 1% margin, you would only need $2,000 deposited to your account – giving you leverage of 100:1. This is not as risky as it sounds, because currencies don't fluctuate as much as stocks. (Learn to cut out losses quickly, leaving profits room to grow, see Leverage's "Double-Edged Sword" Need Not Cut Deep.)

The availability of leverage, and massive size of the market and the ease of making fast transactions has increased the popularity of the forex market. Positions can be opened and closed instantaneously at the exact price shown to you, and typically with no commission or transaction fees. Also, unlike the stock market, in which one large buyer or seller can adversely move the stock price, currency prices are much harder to manipulate because the sheer size of the market prevents any one player from significantly moving the currency price. Currency prices are largely based on supply and demand.


Another reason why forex is so popular with traders is because the market is open 24 hrs, meaning you can choose when you want to trade – regardless of whether you're a early bird or night owl. (For more, see Where is the central location of the forex market?)

The very popular forex market also provides plenty of opportunity for investors. However, in order to trade profitably in this market, currency traders have to take the time to learn about forex trading and dedicate enough time to practice what they've learned.

This forex tutorial will provide new investors and traders with the knowledge needed to trade in the forex market. This tutorial will cover the basics of the forex market and will slowly progress to more advanced topics, such as forex strategies. For now, let's take a look at "pairs" and "quotes" in the next section, and learn how to read them correctly.




Currencies

Related Articles
  1. Trading

    The Forex Market: Who Trades Currency And Why

    The forex market has a lot of unique attributes that may come as a surprise for new traders.
  2. Trading

    Forex Trading: A Beginner's Guide

    Learn about the forex market and some beginner trading strategies to get started.
  3. Trading

    Forex Trading: A Beginner’s Guide

    As businesses continue to expand to markets all over the globe, the need to complete transactions in other countries’ currencies is only going to grow.
  4. Trading

    How Much Leverage Is Right for You in Forex Trades

    It isn’t economics or global finance that trip up first-time forex traders. Instead, a basic lack of knowledge on how to use leverage is at the root of trading losses.
  5. Trading

    Top Reasons Forex Traders Fail

    This market can be treacherous for unprepared investors. Find out how to avoid the mistakes that keep FX traders from succeeding.
  6. Trading

    8 Basic Forex Market Concepts

    We go over some of the things you need to understand before you can trade currencies.
  7. Trading

    Working In Finance: 5 Forex Careers

    The forex markets can be both exciting and lucrative. Find out what jobs exist in this space and how to get them.
  8. Trading

    How To Trade Forex Right Now

    With the expected continued world volatility in the near future, there is a lot of money to be made in the forex market. How can you make the most of it?
  9. Investing

    The Biggest Financial Market You've Never Heard Of

    Though many traders aren't familiar with it, the forex market is is actually bigger than the NYSE in many ways.
  10. Financial Advisor

    What Is A Pip?

    Learn how this measure of change is used in trading currencies on the forex market.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center