Learn Online Forex Trading

Forex Market
Forex (Foreign Exchange) is the name given to the "direct access" trading of foreign currencies. With an average daily volume of $1.4 trillion, forex is 46 times larger than all the futures markets combined and, for that reason, is the world's most liquid market. In the past, forex trading was limited largely to enormous money center banks and other institutional traders. But in just the past few years, technological innovations and the development of online trading platforms allow small traders to take advantage of the significant benefits of trading foreign currencies with forex.

In contrast to the world's stock markets, foreign exchange is traded without the constraints of a central physical exchange. Transactions are instead conducted via telephone or online. With this transaction structure as its foundation, the Foreign Exchange Market has become by far the largest marketplace in the world.

Buying and Selling
In the forex market, currencies are always priced and traded in pairs. You simultaneously buy one currency and sell another, but you can determine which pair of currencies you wish to trade. For example, if you believe the value of the euro is going to increase vis-á-vis the U.S. Dollar, then you would go long on EUR/USD instrument (currency pair). Obviously, the objective of forex currency trading is to exchange one currency for another in the expectation that the market rate or price will change so that the currency you bought has increased its value relative to the one you sold. If you have bought a currency and the price appreciates in value, then you must sell the currency back in order to lock in the profit. An open trade or position is one in which a trader has either bought / sold one currency pair and has not sold / bought back the equivalent amount to effectively close the position.

Market Conventions
Market conventions are rules and standards imposed by a governing body. In case of decentralized forex market these conventions might differ due to many national regulators (FSA, FSC, CFTC, NFA, BCSC, etc.). Since there is no central governing body that sets forex market rules and standards, we will reference only these that are universal.

Quoting Conventions
The first currency in the pair is referred to as the base currency, and the second currency is the counter or quote currency. The U.S Dollar is usually the base currency for quotes, and includes USD/JPY, USD/CHF, and USD/CAD. The exceptions are the Euro (EUR), Great Britain Pound (GBP), and Australian Dollar (AUD). As with all financial products, forex quotes include a "bid" and "ask", which is more often called "offer" in the forex market. The bid is the price at which a forex market maker is willing to buy (and you can sell) the base currency in exchange for the counter currency. The offer is the price at which a forex market maker will sell (and you can buy) the base currency in exchange for the counter currency. The difference between the bid and the offer price is referred to as the spread.