Introduction to Forex
The Basics of Forex Trading
Introduction
Traders buy and sell currencies with the hope of making a profit when the value of the currencies changes in their favor, whether from market news or events that take place in the world. The forex market is the largest market in the world with daily reported volume of over 1.8 trillion, making it one of the most exciting markets for trading.
Market Hours
The spot FX market is unique to any other market in the world, as trading is available 24-hours a day. Somewhere around the world, a financial center is open for business, and banks and other institutions exchange currencies every hour of the day and night with generally only minor gaps on the weekend. Essentially, foreign exchange markets follow the sun around the world, giving traders the flexibility of determining their trading day.
How an FX Trade Works
In this market you may buy or sell currencies. The objective is to earn a profit from your position. Placing a trade in the foreign exchange market is simple: the mechanics of a trade are virtually identical to those found in other markets, so the transition for many traders is often seamless.
Example of How FX Trade Works |
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| Traders Action | Euros | US Dollar |
| A trader purchases 10,000 euros in the beginning of 2001 when the EUR/USD rate was .9600. | +10,000 | -9,600 |
| In May of 2003 the trader exchanges his 10,000 euro back into US dollar at the market rate of 1.1800. | -10,000 | +11,800 |
| In this example, the trader earned a gross profit of $2,200 | 0 | +2,200 |