subject: New to Forex - What Is Forex Trading All About? [print this page] New to Forex - What Is Forex Trading All About?
You may have heard about Forex trading and your curiosity led you to explore further to find out what all the fuss is about. What we are going to do is delve a bit into what Forex trading is social have a better understanding of it before you dive in.
First of all, trading in general is typically looked at as very different from investing. Those who invest stay with their particular positions for a longer periods of time. Those who trade are looking to take advantage of the many short-term to intermediate term profits that the market has to offer.
So now that we have established that trading is shorter-term in nature what exactly is a "trade"? A complete trade consists of opening and closing a transaction for a profit or loss. In stocks a trade may consist of buying 100 shares of a particular stock, waiting for the price to increase, and then selling 100 shares of a particular stock. In a Forex trade units are called "contracts" or "lots". Another big difference is that where a stock transaction involves a single financial instrument a Forex transaction involves two financial instruments. Each Forex transaction consists of a currency pair, for instance the EURUSD, which stands for the euro US dollar currency pair. In this currency pair it is essentially the euro's strength
versus the US dollar' s strength. In our EURUSD example the euro is referred to as the base currency and the US dollar is referred to as the quote currency.
You'll sometimes hear the Forex market referred to as "always a bull market". Those who quote that are actually trying to convey the fact that where as the purchase of stocks is the most common form a stock transaction in Forex both purchases and selling short are common. Let me explain what I mean by that. If we believe that the EUR USD is going to move higher then we would by the EURUSD in anticipation of an increase in price at which point we have an opportunity to profit. If we believe the EURUSD is going to go down in price then we would do what is known as "sell short" in hopes that the price would moved lower giving us an opportunity to profit.
Besides the ease with which you can buy or sell short in the Forex market, the leverage and liquidity is what attracts so many new traders. Currently leverage of up to 100 to 1 is available meaning that you can essentially control a $100,000 contract with $1000. Combine this with the fact that trillions of dollars flow through the Forex markets each day and you have the leverage and liquidity which are perfect match for anyone interested in profiting in speculation.
As you can see there are numerous advantages to trading in the Forex market. The next thing for you to do now is to continue to learn more about Forex trading so that you can take advantage of the many profitable opportunities available in the Forex market each and every day.
