The basics of Forex trading

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Forex Trading

Forex gets its label from Foreign Exchange and is the buying and selling of currencies. The average Forex trading turnover in 24 hours is US$1.9 trillion which makes it the largest financial market in the world. The market closes for only a two day, or 48 hour, period every week and is otherwise open from 5PM EST Sunday to 5PM EST Friday.

Nearly all, 95%, of the forex trading is done on speculation. The trading of the currencies is focused on turning a profit. The remaining portion, 5%, is done for services and products of companies sold in a foreign country and converting back to their own domestic currency. Governments exchange foreign currencies for the same reasons.

If you're considering trading forex, you'll need an expert advisor until you become well versed in all the aspects of currency trading.

The eight major currencies traded, which account for 85% of the trades are:

USD - The US Dollar
EUR - The currency of the European Union "EURO"
GBP - The British Pound
JPN - The Japanese Yen
CHF - The Swiss Franc
AUD - The Australian Dollar
CAD - The Canadian Dollar

Originally forex trading was only available to major banks and financial institutions. Advances in technology has opened forex to individuals through forex brokerages. Forex brokers can facilitate the trading through online trading platforms.

Currencies are traded in pairs with the base currency quoted first. The US Dollar is quite often used as the base. The base currency always has a value of one. The currency that is being traded is quoted in relationship to the base currency. So if you see USD/INR 42.50, it means that $1 in US dollars will buy 42.50 Indian Rupee. If the dollar strengthens it means that $1 can buy more Indian Rupee. If it weakens, it means the $1 can buy less Indian Rupee.

There are exceptions to the US Dollar being the base currency. These exceptions include the Euro (EUR), Australian dollar (AUD) and the British pound (GBP). For these currencies the quote can be shown as unit of the foreign currency, say one Australian dollar is equal to Y amount of US dollars. AUD/USD .9561

There are a number of factors that influence the value of a currency. These factors include political and social changes, the trade or government deficit, and inflation or recession. These factors can have both a short and long range impact on the value of the currency. The influence can be short lived or long lasting.