Introduction to Forex (First Lesson)

What is FOREX?

Forex is actually a short form of saying foreign exchange and so it implies foreign currency exchange. This is very similar to a stock exchange market which functions 5.5 days a week and anybody who owns a computer and an internet connection can start trading.

There are some basic differences between an ordinary stock exchange and Forex market. The main difference lies in the fact that Forex trading is actually purchasing and selling different pairs of currency like the Euro dollar, EUR/USD, British Pound and Japanese Yen instead of buying and selling stocks or bonds. The other main difference is that Forex is open twenty four hours of the day and so you can open and close your dealing according to your convenience. But this is not possible in a stock market.

Forex is now more popular than conventional trading as currency is much more impulsive than the stock market. This explosive nature guarantees massive wind falls if a trader is lucky enough to be on the favorable side of the trade. So Forex is just all about buying and selling foreign currency hoping to make large profits during trading.


In order to make huge profits from Forex, you need to be quite well informed about the direction in which the currency is supposed to head in. there are charts that are available which reveal the movement of the currencies.

One of the ideal ways to begin trading in Forex is to begin with an automated Forex system which is commonly known as an Expert advisor or Robot. This is just a kind of software which can be installed on your computer. It will conduct the trading operations for you in accordance with the system that you have programmed into it. This makes the process much easier as it is not necessary to keep an eye on the market 24 hours a day to make your moves.

If you are interested in mastering how to trade in Forex, the best way is to approach a well known Forex broker or you can even learn the trade through various online sites which specialize in this field.

What is it all about traiding?

Foreign exchange trading - often shortened to forex trading or even just fx trading - is the purchase of one currency while simultaneously selling another.

Currencies trade in pairs, like euro/US dollar (EUR/USD) or pound sterling/US dollar (GBP/USD). The first currency listed is known as the 'base', and the second is the 'variable'. The value of the base currency is always 1.

Unlike trading on the stock market, forex trading does not take place on a central exchange. Instead the foreign exchange market is an OTC (over-the-counter) market. The main forex trading centres are in London, New York, Tokyo, Singapore and Sydney. The worldwide distribution of these trading centres means that forex trading can take place 24-hours a day - the market 'chases the sun'.

Forex trading is the largest and most liquid market in the world. According to a survey carried out by the Bank for International Settlements (BIS) in 2007, the forex market has a turnover of more than $3 trillion a day.

Who trades forex?

Daily turnover in the forex market comes from two sources: speculation for profit (around 95%) and foreign trade (around 5%). The main market participants in forex trading are banks, but currency speculators, companies and other financial institutions also account for a significant proportion of trading activity.

Most traders focus on the most liquid currency pairs, known as 'majors'. More than 85% of daily forex trading involves these major currency pairs.

How to trade forex?

A relatively straightforward way of gaining access to the forex market is through trading forex CFDs (Contracts for Difference). Forex CFDs let you take advantage of the high volatility seen in the forex market without having to own substantial quantities of the actual currencies.

CFD providers quote a price for a currency pair, and, depending on whether you think the base currency is set to rise or fall against the variable, you buy or sell the base currency. For example, if you thought pound sterling was going to strengthen and that the US dollar was going to weaken, you would buy GBP/USD contracts.

Why trade forex CFDs?

Trading forex CFDs means that you do not have to pay for the full value of the underlying currencies you are trading. Instead you put down a deposit, which, in some cases, means you can trade up to 100 times more than your initial outlay would have bought in actual currency. Because of this remarkably high leverage - and when combined with the liquidity and volatility of the forex market - there is significant potential for making huge profits or losses with forex CFDs in a short space of time, even when there are only very small price movements.

Forex CFDs also enable you to go long (buy) or short (sell) on a currency pair. This means it's simple to potentially profit from both rising and falling markets.

Leading forex CFD providers offer a wide range of forex CFDs, often with spreads from as little as 1 pip, low deposit requirements and advanced risk management tools.

Remember that CFDs are a leveraged product and can result in losses that exceed your initial deposit. Trading CFDs may not be suitable for everyone, so please ensure that you fully understand the risks involved.