Forex Trading for Beginners – A Guide

Thanks to a variety of confusing terms and the potential for losing money whilst trading, many people are both unaware and unconcerned by the various incarnations of the stock market.

Forex for example, is a term which many people may not have heard of, and as a result they may not have experienced the variety of benefits which Forex trading could offer to them.

The key then is to examine what Forex is and just how accessible Forex trading for beginners really is.

What Is Forex?

At its’ most simplistic, Forex is the process of trading currencies from different countries against each other.  Forex is so called to represent the Foreign Exchange.

To clarify, the foreign exchange is the “place” where the transactions take place and where currencies are traded. In order to trade in any market, it is essential to have the correct currency to operate within that market. Therefore, if a person wished to buy a bicycle from the UK they would have to firstly access the correct currency – in the form of pounds sterling.

The fact that there is no global currency and those wishing to trade or buy within a certain market have to use the correct currency for that locale is the reasons why the Forex market is seen as the largest market in the world.

Although it is often coupled with the stock exchange, the two are vastly different and in terms of size, the Forex Market dwarfs the stock market as well as other markets in both size and in terms of the amounts traded per day. A recent estimate showed that some US$2,000 billion is traded on an average day. This is a figure which most people would struggle to comprehend. Of course, this money does not physically exist and all trading takes place electronically via traders all over the world, rather than via one single exchange.

The Forex market is open on a 24 hour basis for five and a half days every week and currencies can be traded across almost every time zone in major financial centres such as London, New York, Tokyo, Frankfurt, Hong Kong, Singapore, Paris and Sydney

How to Trade

There are three ways in which trading can take place: the spot market, the forwards market and the futures market.

The spot market is seen as the largest of the three and has historically been the most popular. Within the spot market, currencies can be brought or sold according on the current price. That price may be determined by supply and demand and is often a reflection of interest rates, political situations and economic performance.

Whilst the spot market deals in actual currencies, the futures and forwards markets deal in contracts which refer to a certain currency and a price per unit with a date contracted for settlement. The terms of these contracts are arranged by both parties at the time of the sale and purchase.

Of course, the type of trading is very much dependent upon the personal preferences of the person doing the trading and their own knowledge of the market, which is why it is especially important for those people trading to know all they can about Forex.