Forex Trading Basics For The Novice Investor

By Cookie Maxwell

 

What is Forex Trading?

In order to understand forex trading basics, you must first know the meaning of the term. The foreign exchange market, or forex for short, is the trade of foreign currencies on the open market. This market used to be the playground of hedge fund managers and extremely wealthy people only, but the Internet has opened forex trading up to everyone. It is possible to buy and sell currency instantly over the Internet through brokerage accounts set up online.

The fluctuation of currencies is often very small on a daily basis. For example, trading USD for CAD would result in only a few cent differences per day. Foreign exchange is one of the most stable financial markets. The forex market provides many opportunities for even beginning investors. Before you foray into the world of foreign exchange, you must understand the forex trading basics.

The Benefits of Forex Over Other Financial Opportunities

Those who know forex trading basics can tell you that the market has grown rapidly over the past few years because of the rise of the Internet. It is almost impossible for any players to manipulate supply and demand, unlike the stock market. This is because the size of the market is so large that even the biggest players, such as so-called "megabanks," do not have enough power to move prices.

Forex trading is also a 24-hour a day process because markets are open at different times throughout the world. This is great for investors that want their money to be working for them while they are sleeping.

Forex trading allows your money to be liquid nearly instantly. Low transaction costs allow you to trade more frequently than you would be able to with stocks as well.
Types of Trades: Spot Market, Forwards and Futures

There are three ways for individuals and corporations to trade on the forex market. The spot market is the largest market because it is the only "real" asset. Before the rise of Internet trading, futures were more popular with traders because they were available for an extended time.

Those just learning forex trading basics often start with trading on the spot market. The spot market is where currency pairs are purchased and sold in accordance with current values. A currency's value hinges on supply and demand. Supply and demand of a currency depends on many different things, such as interest rates and a nation's current economic health overall.

Forwards and futures are not trading real currency pairs, but instead deal in contracts that represent specific currency types, an agreed upon price per unit and a date in the future on which the contract will be settled. Forwards are purchased and sold between individuals who agree upon terms they come up with personally.

Futures are traded on public markets. Federal governments also generally regulate futures. Contracts include things such as the number of units being traded, settlement dates, and price increments that cannot be changed.

Forwards and futures are both binding contracts that are generally settled for cash on expiration. They can offer protection against major risk when trading on the forex market.

MyReviewsnow.net offers information regarding forex trading basics. For more on forex trading basics, please shop online with us.

Article Source: http://EzineArticles.com/?expert=Cookie_Maxwell