An Introduction to Foreign Exchange Trading for Beginners

FOREX TRADING stands for the purchasing of one currency at the same time selling another. In simple terms, the currency sold is exchanged for the currency bought. Currencies typically trade in pairs. Examples are the Euro to the US Dollar or the US Dollar to the Japanese Yen. A bulk of the FOREX TRADING happens with the most liquid and biggest currency pairs. Major currencies are the US Dollar, the Euro, the British Pound, the Japanese Yen, the Swiss Franc, the Australian Dollar, and the Canadian Dollar. Trading of these currencies are in such huge volumes that they alone compose 85% of daily FOREX TRADING. FOREX TRADING came into being due to trade and investment between companies across different countries.

No matter how you choose to make money with your investments – whether it be with stock futures investors, options on stock futures, or stock investing – you should know there are some benefits of choosing forex trading. Three major features of FOREX TRADING are huge trading volumes, decentralized system, and virtually uninterrupted trading hours. High profits are attained due to the huge volumes of trading foreign currencies. It is in fact the most traded fixed income market with its average daily turnover reaching US$3.2 trillion. FOREX TRADING does not have a centralized exchange unlike the stock market. Transactions are undertaken by participants thru the telephone and an electronic network. Lastly, FOREX TRADING happens practically 24 hours a day except weekends. Opening at the start of the business day in Sydney, it moves on to Tokyo, then London, then New York. Because of this, participants and investors are able to monitor and respond to market fluctuations day or night.

Financial institutions of different levels participate in FOREX TRADING. Central banks, investment firms, commercial banks, remittance companies, and commercial companies are among these institutions. Trading done by investment firms and commercial banks are done either for their clients’ or their own accounts. FOREX TRADING by central banks are done in their respective economies’ interests. Vast forex reserves of central banks have been used every now and then to stabilize the market or a currency. Participation of remittance companies happen due to the flow of money from countries with a huge population of migrant workers to these workers’ home countries. Trading participation of commercial companies is comparatively lower as their FOREX TRADING is being done as a consequence of paying for goods or services. Retail traders or individuals may also participate in FOREX TRADING but is done through banks.

Participants of FOREX TRADING have developed and used several strategies in maximizing profits just like in any market. One of the most common strategies is the candlestick charting strategy. Developed by a Japanese rice trader in the 18th century, candlestick charts were used to predict market and price movements in the rice exchange at that time. Stock, forex, and commodities markets presently use the candlestick chart as an indispensable tool for decision making.