Forex Trading: Introduction to Foreign Exchange Trading

The foreign exchange markets are always in a constant state of flux, and for the budding trader, it can be a rather daunting place to invest and trade your money. We bring you into the world of foreign exchange trading. As you look into the prospect of forex trading you will begin to understand the width and breadth of the forex market. It is a worldwide market trading currencies 24 hours a day 7 days a week (Well actually, markets are actually open for about 5.5days a week actively trading). As a consequence of this huge market, the market is highly liquid and high volume takes place daily. As the market in constant flux there are plenty of opportunities for forex trading.

Forex trading takes advantage of the constant flux of the market, buying and selling into and out of the ebbs and flows of the foreign exchange trading charts. Many profitable trades await the trader in these markets. So as you examine your charts as a forex trader you will find that the market display's repetitive behaviour as well as trends. Trends can go in three ways; an up trend, down trend and a sideways trend. As a trader you take advantage of price differences so you ought to stay away from sideways trending forex markets while jumping at every chance at up trending (long) markets or down trending (short) markets.

The important catchphrase in forex trading or any other trading for that matter is that "the trend is your friend." An uptrend is simply defined as a set of prices on a chart that display a pattern of higher highs and higher lows: or put simply a graph going up from left to right. A downtrend is the opposite to an uptrend with a pattern of lower lows and lower highs: or simply put a graph going down from left to right. Then you have your sideways charts which really doesn't display any clear uptrend or downtrend and shows up as either an erratic pattern of highs and lows or a pattern where the price doesn't really change much between the highs and lows.

Foreign exchange trading takes advantage of trends and the price differences at which the traders buy and sell the foreign currencies. It is a highly valuable skill to master the ability to read charts and to be able to see the uptrends and downtrends as well as the sideways trends in any chart or market you examine. Remember, the trend is your friend, ride the trend and you shall have your profits. As profits are the main objective of any forex trading venture.

This article "Forex Trading: Introduction to Foreign Exchange Trading" can be found in our Foreign Exchange (FX) Markets category.

George Polizogopoulos is a staff writer for MyShareTrading.com, an information hub for traders: forex, shares, derivatives, CFD's. MyShareTrading.com also provides free blogs for traders who wish to share their market experiences.

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Forex Profits

Forex, FX and the Forex market are some common abbreviations for the Foreign Exchange market. Actually it is the largest financial market in the world, where money is sold and bought freely. In its present condition the Forex market was launched in the seventies, when free exchange rates were introduced, and only the participants of the market determine the price of one currency against the other proceeding from demand and supply. As far as the freedom from any external control and free competition are concerned, the Forex market is a perfect market.

With a daily turnover of over trillions of dollars, the Foreign Exchange market conducts more than three times the aggregate amount volume of the United States Equity and Treasury markets combined. The Forex market is an over-the-counter market where buyers and sellers conduct foreign exchange business using different means of communication.

Unlike other financial markets, the Forex market has no physical location or central exchange. Since the Forex market lacks a physical exchange, the market trades continuously on a 24-hour basis, moving from one time zone to the next, across each of the worlds major financial centers every day. Trillions of dollars of foreign exchange activity takes place every day. From 1997 to the end of 2000, daily forex trading volume surged approximately from US$5 billion to US$1.5 trillion and more (according to various recent studies it has touched $1.7 trillion per day and dwarfs all other markets for trading in size and volume). It is really difficult, if not impossible; to determine an absolutely exact number because trading is not centralized on an exchange. But one thing is for sure that the Forex market continues to grow at a phenomenal rate.

Before the advent of Internet and ecommerce, only big corporations, multinational banks and wealthy individuals could trade currencies in the Forex market through the use of the proprietary trading systems of banks. These systems required as much as US$1 million to open an account. Thanks to advancements in online technology, today investors with only a few thousand dollars can have access to the Forex market 24 hours a day and around 5 days of a week.

The Forex market is a nonstop cash market where currencies of nations are traded, typically via brokers called forex brokers. Foreign currencies are constantly and simultaneously bought and sold across local and global markets while traders increase or decrease value of an investment upon currency movements. Foreign exchange market conditions can change at any time in response to real-time events so it is also considered to be a highly volatile and fragile market too. Conditions of the Forex market never remain the same they changes every second.

The foreign exchange market dwarfs the combined operations of the New York, London, and Tokyo futures and stock exchanges. According to its size and scope it is many times larger than all other markets. Stats shows that spot transactions and forward outright Forex trading take place in the inter-bank market. 51% of the market is in spot Forex transactions, followed by 32% in currency swap transactions. Forward outright Forex transactions represent another 5% of this daily turnover, with options on interbank Forex transactions making up another 8%. Therefore the inter-bank market accounts for 96% of the global foreign exchange market, with the remaining 4% being divided among all the global futures exchanges.

For traders, Forex trading provides an alternative to stock market trading. While there are thousands of stocks to choose from, there are only a few major currencies to trade (the Dollar, Yen, British Pound, Swiss Franc, and the Euro are the most popular). Forex trading also provides a lot more leverage than stock trading, and the minimum investment to get started is a lot lower. Add to that the ability to choose flexible trading hours (forex trading goes on 24 hours a day) and you have the reason why so many stock traders have flocked to day trade currencies.

Anthony Trister is a currency trader and is an owner of OneDayTrades which offers free, mechanical forex signals and an automated trading program for those wanting to trade forex. Free access available here: http://www.onedaytrades.com.