Forex is short for Foreign Exchange. You may be familiar with changing your money intoanother currency when you go on your holidays, but this is just the tip of the iceberg of an enormous industry built on buying and selling money.
You see everyday currencies around the world are bought and sold. Traded around the world. Owners of one currency offer to sell it to others who have a different currency that they, in turn, want to sell.
Thus, buyers and sellers come together, each with interests that compliment the other.
Currencies are bought and sold in complementary pairs, for instance if you were selling pounds sterling, and buying US dollars, you would be trading the GBP/USD currency pair.
You will want to choose a good broker who will handle your trades for you. Reviews are a good way of determining this, and you can go to reviewsbird.co.uk to find what others think of the broker you chose. By doing this, you will ensure that you are cooperating with the best trading companies that are on the market.
Buying And Selling
Trading on the foreign exchanges is very much like trading on any other market. You buy and sell particular assets as you see fit, hopefully for a profit. And just like any other market there is a price for sellers and a price for buyers.
What this means is that if you want to buy Euros, you will need to pay the ‘Ask’ price that is being asked for by sellers. This is the minimum price that they are willing to sell for.
If you want to sell Euros, then you will have a ‘Bid’ price, which is the maximum price that buyers are willing to pay.
The difference between the Bid price and the Asking price is called the ‘Spread’.
It is this spread that often causes confusion for us, for instance when we change our money to go on holiday, and we wonder why we are getting such a bad rate on our currency exchange. You see, the actual price we see as the exchange rate doesn’t take into account the spread that traders have to deal with.
Advantages of Forex Trading
The forex markets are huge trading platforms upon which huge amounts of money are speculated every day.
The forex markets are also open 24/7, so traders have the ability to pick a time zone and work with that, rather than waiting for traditional stock markets to open.
Also, unlike stock markets, the forex market is very liquid, and prices can fluctuate by relatively large amounts over a short time.
Why is this a good thing? Well, it means that sellers can take advantage of the large amounts being traded and profit over relatively short time frames.
If you are a beginner, then you would be best to practice a lot, with a demonstration account that doesn’t use real money. Only then should you move to trading on a cash account.
Don’t make the mistake of trading more than 5% of your account at any one time, and make do with small wins at first. It’s very easy to lose all your money, especially if trading on margin.