It is now possible for anyone with a computer and internet connection to trade currency. In a world that has been cut in size by world trade, an investment in currency is one way to trade in the world markets and stay diversified. A new forex investor must understand the basic of foreign exchange investing and it is recommended to demo in a practice account for 60-90 days. The currency market is similar to the equity markets in that investments promise a potential profit and can help hedge against inflation, it is the common rule of buy low sell high.
Major banking institutions play a huge rule in the forex market. These banks are responsible for maintaining their own balance of trade as well as the stabilization of their economy. The forex was traditionally dominated by these few banks and financial institutions. With the advent of the internet the currency markets opened up to investors and speculators.
Currency trading is always done in pairs. There are six sets of pairs the make up 85% of the market.
EUR/USD- EURO
GBP/USD- POUND
CAD/USD- CANADIAN
JPY/USD- YEN
CHF/USD- SWISS FRANC
AUD/USD- AUSSIE
The first currency listed is known as the base which is the one that you are going to buy. The second currency is the counter which is the one that you are selling in equal amounts. So if you buy 10 of EUR then you are selling 10 of USD.
You can buy and sell your currency through brokers like you do with equity trades, the difference is you are trading cash. Bid is the price that the broker will buy the currency for, the price the trader will sell at. Ask is the price the broker will sell at, so that is the price you the trader are going to buy at. If the ticker reads:
EUR/USD 1.2718/21
Bid= 1.2718
Ask= 1.2721
The currency market is a 24 hour market and trading can take place basically any time. The trading offers high degree of liquidity and better efficiency as compared to an equity market. Large volumes and fewer instruments help generate greater daily volatility, thus creating better opportunities to earn greater profits.