What is Forex Trading?

With a volume of $3 trillion traded each day, the foreign exchange market is the largest financial market in the world. While Forex trading was once the exclusive domain of banks and large financial institutions, the rise of Internet technology has made it accessible to all types of investors including individuals with small investment capital. As word of its substantial and quick potential profits is spreading, online forex trading is becoming more popular each day.
What is Forex Trading?

Forex trading also known as currency trading refers to a series of transactions on foreign exchange markets used by investors for speculative or hedging purposes. A basic forex transaction consists in the simultaneous buying and selling of one currency against another. Currencies are thus traded in pairs (majors or crosses) for instance: the Euro against the US Dollar (EUR/USD) or the British Pound against the US Dollar (GBP/USD). For example, buying the pair EUR/USD at 1.3305 means that you need 1.3305 USD to buy one euro.

Trading forex can also be described as speculating on the direction of one currency against another. You make profit when the market moves in your favor and you lose if the market moves against you. For example, you'll buy EUR/USD if you think that the Euro will strengthen against the US Dollar. Conversely, if you think the Euro will weaken compared to the US Dollar, then you will sell EUR/USD.

The simulation platform will allow you to trade with virtual money in real market conditions. Once you have acquired the skills to trade, then you need to select wide range of tools and indicators available online to make wise and informed decisions for successful online forex trading.

Online Forex Trading Strategies

There are many ways to Trade Forex. Some traders practice "day trading", which means that they open and close positions in the same day. Some even open positions only for a few minutes. Others prefer to trade over several days, while some make deals over several weeks and even months. Depending on your trading profile, you will build your strategy either according to technical or fundamental analysis or both.

Leverage and Margin

One of the great advantages of forex trading is that you can benefit from Leverage for increased profits. Currencies are usually traded in lots, with a standard lot being equal to $100,000. Since many individual traders can't usually come up with such large amounts, online brokers offer them the possibility to trade with margin. With margins, traders may enter positions with much greater value that they can afford. The collateral you put down to enter such a position is known as the margin. This margin allows you to create leverage to enter the position. As you can see, leverage is a great way to increase your buying power but it's a double-edged sword: it can also lead to substantial loss. For this reason, it is recommended that new traders use low leverage to start off with. Let's say you buy 100,000 EUR/USD with a margin requirement of 1%. This means your used margin (the amount available for loss or opening new positions) is $1,000 while your usable margin is $99,000. If your losses exceed your usable margin, you will either need to add money to your account or you broker will close your position (margin call).