Forex refers to the Foreign Exchange market. Here, currencies are traded to make profits. The trick of the trade is to sell the currency at a higher price than the price at which it was bought. This simultaneous buying and selling of currencies can include both native and foreign currencies.

How is Forex trading done?

Traders buy a currency when the price is low and sell it at a time when the price goes higher. Forex trading takes place in pairs. Two currencies are paired together and are called Currency pairs. Each currency is given a three letter code. For instance United States Dollar is referred to as USD and Japanese Yen is called JPY. When these are paired they are represented as JPY/USD. This signifies that the trader is purchasing United States Dollar by spending Japanese Yen.

Forex brokers give high leverages owning to the high liquidity of the Forex market. Leverage means that an investor can trade with high amounts when he/she has a lesser amount in his account. Mostly brokers are seen to offer a leverage of 100:1. With this an investor can trade with $10000 if he/she has $100 in his/her account.

The profit and loss in Forex is dependent on the rise and fall in the price of the currencies. The exchange rates constantly change depending on demand and supply and other market dynamics. The exchange rates are determined by the price of the currency bought or the second currency in the Currency Pair. The trader benefits if the exchange rate increase and suffers a loss with a decrease. Traders configure alerts and use Stop Loss to minimize losses in Forex.

What is the medium for Forex trading?

Trading in the Forex market is carried out through international banks and brokers. All the trading in this highly developed trading system is conducted online. The trading system offers an investor the choice of using a broker-side Forex trading application or a web-based trading application. A trader can chose the kind of trading system depending on his or her needs. The web-based trading system is suitable for people who occasionally participate in online Forex trading. On the other hand, the broker-operated direct mode of trading is suitable for those traders who trade on a daily basis. Of late, both kinds of Forex trading system are offered by brokers. Some offer them free of cost while others charge a certain amount or subscription.

Features of Forex trading

• Forex trading system involves no actual exchange of currencies. OTC or Over the Counter Trading is conducted in Forex trading. Trading, therefore, consists of the interaction between the broker and the dealer and the negotiation of prices. Traders place their orders either directly or with the help of the brokers. The automated software performs the actual task of matching ‘bid’ price and the ‘ask’.
• A trader can use a mini Forex account or a regular Forex account. The mini account requires a lower investment amount. The risk here is also less than a standard trading account.
• Forex trading is dependent on computers, internet and softwares. Though it needs human intelligence for taking the most appropriate decision.
• Unlike stock market, in Forex, one can make profit with changes in currency rates in both the directions.