For most common traders, the foreign
exchange market is relatively unfamiliar ground. Until more recently, currency
exchange was not common practice for the retail investor. Instead, foreign
currency investment was dominated by large financial institutions, big money
investors, and multinational corporations. The Internet has opened the
floodgates to this emerging investment option. As more information surfaces,
popularity will continue to grow in the UK, which is currently the largest
trading hub of foreign currency in the world. Prospective investors who want to
learn Forex trading can read about different strategies, research investment
opportunities, and learn hands-on by participating in the market through a demo
account with a brokerage service.
For those who do not know, the foreign
exchange market, Forex, or FX, is the market where currencies, or money, is
traded. Unlike trading stocks, bonds, or options, there is no centralized
marketplace or governing body. The foreign exchange industry is self-regulated.
There are also often no commissions or brokerage fees in the FX market. Brokers
collect a profit on the spread between the buying and selling price of the
currency. Many investors are lead to believe there will be a physical exchange
in currencies upon completion of each transaction. However, this is not the
case. All trades simply exist as computer entries and are netted out depending
on the market price. All profits and losses are calculated in the base currency
and recorded on the trader’s account history. It helps to think of money as a commodity;
essentially, investing in a country’s currency is investing in the success or
failure of their economy.
Like many other industries, the currency
market has its own language. Understanding the jargon can help you understand
what you’re hearing or reading. For example, sterling and pound are different
names that refer to the GBP. Selling a yard means selling a billion units.
Understanding the language will go a long way towards making you sound like you
know what you’re talking about.
There are seven pairs that are considered
to be the most traded currency pairs in the world. The four most popular are
the EUR/USD, USD/JPY, GBP/USD, and the USD/CHF. There are three less popular
commonly traded currency pairs known as commodity pairs, and they include the
AUD/USD, USD/CAD, and NZD/USD. These currency pairs and their various
combinations make up for nearly all of the speculative trading transactions
that occur on the foreign exchange. These are not the only currencies that can
be traded. More exotic and risky currencies are available for trade as well, if
you are in search of a higher potential return.
If you are interested in learning about Forex
trading, it goes without being said that there is an undeniable learning curve.
However, today’s marketplace and brokerage services have made it easier than
ever before to learn about and participate in currency exchange risk free.
Signing up for a demo account is a great way to get your feet wet and learn
about how to make money in foreign exchange markets.