Thursday, November 19, 2009

What Is Forex Trading

Forex Trading is the act of trading currencies from different countries against each other. Forex is acronym of Foreign Exchange.

Ex: In Europe the currency in circulation is called the Euro and in the United States the currency in circulation is called the US Dollar. An example of a Forex trade is to buy the Euro while simultaneously selling US Dollar. This is called going long on the EUR/USD.

Forex trading is typically done through a broker or market maker. As a forex trader you can choose a currency pair that you feel is going to change in value and place a trade accordingly. For example, if you had purchased 1,000 Euros in January of 2005, it would have cost you around $1,200 USD. Throughout 2005 the Euro’s value vs. the U.S. Dollar’s value increased. At the end of the year 1,000 Euros was worth $1,300 U.S. Dollars. If you had chosen to close your trade at that point, you would have made $100.

Forex trades can be placed through a broker or market maker. Orders can be placed with just a few clicks and the broker then passes the order along to a partner in the Interbank Market to fill your position. When you close your trade, the broker closes the position on the Interbank Market and credits your account with the loss or gain. This can all happen literally within a few seconds.

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