The FOREX or the foreign exchange market is one of the largest markets in the world where one currency is traded for another. Anyone can buy and sell currency – from large multinational companies who require a local currency for salaries or materials, to currency traders who speculate on exchange rate movements. A profit can be made on tiny differences in exchange rates when trading one currency for another.
While a conventional stock market and the FOREX may appear similar, there is one fundamental difference – a much higher level on money is changing hands twenty-four hours per day all over the world. There is no one central location where the FOREX market trades – except perhaps on the internet. As long as there is a worldwide banking system there will be a FOREX market.
FOREX is also much more volatile than the conventional stock market. World events are reflected much more quickly in the FOREX market and in the hands of an experienced trader there is the potential of making huge profit – of course this volatility also implies higher losses are possible as well.
To begin trading on FOREX you will need to register a trading account with a Forex broker. Some FOREX brokers allow trading from a little as $1, although the usual minimum trade is around $100 and can be as high as $10,000 or more. Brokers offer a “mini-FOREX” accounts for those beginning trading. This mini-FOREX account allows smaller investments and therefore smaller profits. Although the mini-FOREX allows you to trade in the real FOREX for one tenth of the cost, you are still exposed to all of the risks of currency trading simply on a smaller scale.
FOREX trading can seem daunting to the novice due to the terminology used. For example when trading currencies each pair of currencies is noted as AAA/BBB, where AAA and BBB are the ISO 4217 international three-letter code of the currencies involved. For example, EUR/USD is the price of a euro expressed in US dollars – 1 euro = 1.225 dollar. There are many web sites dedicated to explaining the FOREX and all of the major brokers will have extensive help available on this topic.
If you wish to begin FOREX trading you will need a broker. These companies are professionals in the field of currency trading and bring a wealth of experience for the beginning trader. The first step, if you are trading in the US, is to verify that the company is be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC). The CFTC is there to protect the public against fraud and manipulative trading practices.
As these brokers will charge for their services, you should find out what costs are associated with your transactions. These transaction costs are calculated in pips – the lower the number of pips required by the broker the greater the potential profit you will make. By comparing the pip spreads of your chosen brokers you can find the minimal transaction cost.
Information is all important in currency trading. Before choosing a broker be sure that they give you access to good charting and analysis tools for free. You should also verify that your broker provides instant execution of your transaction. You need prompt and accurate execution of your orders especially when you are trading for small profits. Finally, check the trading platform offered by the broker. This is the software that allows you to execute trades and will be either an online web-based system or a program that you will install on your PC. Always ask for a demonstration account and evaluate the trading software before signing up.
