Forex Currency Trading For Beginners

Your Introduction to the Forex market - Part 1

When you first start to learning about the FX market, it is easy to get lost in a sea of terminology, concepts and misinformation.  I did and it almost stopped me from going any further.  Terms like PIPs, margins and technical analysis can make learning the fundamental concepts of Forex trading more difficult.  Fortunately, I was able to keep going and one day it started to confuse me less and less.  Finally, a basic structure was formed in my mind and little by little, I began to understand a little more.  I want to share my basic understanding of the Forex market with you in this article so that we can take the next step in learning about the FX market together.

            The Forex is the single largest marketplace in the world.  It trades in the range of 2 – 3 trillion dollars a day, 6 days a week, 24 hours a day.  Simply put, this is where your money is at.  Trading currencies use to require large amounts of money to even get into the game, plus only banks had the ability to make trades.  So unless you had a lot of money to play with and you had an established relationship with a large bank, you could not trade the Forex.  Of course the internet changed all of that by providing direct access to worldwide financial markets through your desktop.  Computer technology advances in the late 1990's developed online trading platforms that could be installed on your desktop computer.  These programs took advantage of the access provided by the internet and today just about anyone can trade currencies anywhere in the world with a computer and internet access. 

As a result trading on the Forex exploded from a billion dollar-a-day market in the 1970's, to a trillion dollar-a-day market today.  While the sheer size of the market represents the single largest opportunity for financial gain available, it also represents an equally large opportunity for financial ruin.  If you plan on trading on the Forex, it is advisable that you learn as much as possible first in order to maximize you chances for success and minimize your risk of failure.  Hopefully, reading this article will be your first step towards realizing this important goal.

The first concept that you must grasp is that while the Forex market involves trading currencies in international capital markets, the overwhelming majority of trades occur without the transfer of physical items.  All Forex trades are conducted in pairs of currencies and neither the buyer nor seller is interested in actually taking possession of actual currency.  To accomplish this optimal set of circumstances, a Forex trade is actually composed of contracts to buy and sell pairs of currencies at a fixed rate of exchange.  This fix rate often fluctuates randomly throughout the course of the day and is established generally by the market itself and more specifically by the broker with whom you negotiate the terms of your individual contract.  The size of the Forex market, the amount of people participating in it and the amount of money that is transferred on a daily basis all combine to make the Forex a very attractive place to do business.  You can be sure that there will always be somebody buying or selling what you want to buy or sell somewhere in the world and because different countries do things differently, there will always be a good potential for profits. 

What I just described can be summed up by the term liquidity.  By definition, a liquid asset has the ability to be sold rapidly during market hours and without appreciable loss of value.  In the Forex market, your asset would be the currency pair contract that you purchased at a set price.  Since the market runs 24 hours a day for 6 days a week, it's almost always open.  Also, there are literally millions of market participants buying and selling whenever the market is open and the actual product being bought and sold is, well, Money!  With those characteristics, it's not hard to see that the Forex market is probably the most liquid market in the world.  This concept of liquidity is very important and is one of the most attractive features of trading currencies.  Anyone who has ever gotten stuck with something that used to be valuable that all of a sudden became so unvalueable that you could not give it away, should understand that power of a liquid market.  You will never be in a situation where your asset, money, will not be wanted by someone somewhere.  They may not want to pay your price but you will always have the option to cut your losses.

Hopefully, that last paragraph gave you a good idea about the term liquidity and how it relates to the Forex currency exchange market.  In my next article, I will be focusing on some of the basic terms used in Forex trading so that you can build a basic understanding of what is going on during an actual trade.

See you next article!

John Q

www.saveyoursmile.com

P.S. - Are you looking to learn more about the Forex market? 

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currency trading - Forex software overview

Disclaimer:  This article is provided strictly for informational purposes only!  It is not intended for professional use.  I am learning about the forex market just like you so please if you are planning on actual trading the forex seek professional advice.  Just so we are clear on this point, below you will find the mandatory governmental disclaimer: