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An Overview of the Basics of the Forex Market

Aug 17, 2007
While you may have only recently heard about the fun and excitement of trading on the world currency mareket, Forex trading has been around longer than you might think. Forex, or foreign currency exchange, grew out of a fixed exchange rate system developed after World War II, that allowed countries to trade based on a fixed value to the US dollar, which was in turn, based on a fixed value to the gold standard. However, modern Forex trading became prevalent in the 1970's, with currencies around the world fluctuating in value, or going up or down. Traders in Forex deal with these fluctuations, and buy and sell currency with the attempt to make a profit.

Foreign currency trading has become extremely popular for a variety of reasons. Unlike the stock market, the forex market never closes, and you can trade 24 hours a day. Many traders like this because you don't have to watch the market close down, and wait to see how any new financial news affects the market the following morning. Forex also requires few training qualifications, usually you just need to open an account with a broker, provide the necessary identification, and you can then begin trading. Most trades are also made without paying a commission, which keeps the overall costs down.

Another reason Forex has become so popular is that you are able to trade on margin. That means that you will only need to have a percentage of the money available that you will actually be able to trade with. For example, if you have a one percent margin, if you have $10,000 in your account, you can actually make trades of up to $100,000 in currency value.

The large majority of traders on the market are not individuals, but financial institutions and commercial organizations and businesses. Not all companies participate however, such as pension funds. That is usually because forex trading can be seen as more risky than trading on the stock exchange, and is more designed for short-term, rather than long-term gains.

While it is relatively easy to open a Forex account, trading requires a little more learning and specialized knowledge. If you are interested in Forex trading, it is important to do some research and learn the fundamentals first, as it can be quite complicated. With the rise in popularity of Forex, there is a lot more information available, including online resources, that can give the needed preparation.

Many people, when first starting out in Forex, will open a demo account to practice. This is a great way to get started. A demo is an account with no money in it, which allows you to practice making trades and to be able to learn the basics of forex without the risk. You can track your progress, and learn from your mistakes in order to refine your trading strategy.

Forex trading can be fun and exciting, but newcomers should invest in the time and education necessary to become proficient before they jump in. The Forex market has many advantages that lend itself to individual trading, but also has a level of complexity that should be understood before you try it out. If Forex intrigues you, practice will make all of the difference to your success or failure.
About the Author
Amy Wells is an enthusiast of forex trading and writes and reports on consumer finance issues. You can get
more information on the basics of forextrading at: http://www.forex.yourtechtool.com/Currency-Exchange/Currency-Exchange.php
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