Forex Trading Basics For The Clueless

Feb 13
14:12

2011

Craig Thornburrow

Craig Thornburrow

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While most people have an idea of how the stock market works, they may be clueless to how Forex trading operates.

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Forex trading refers to the foreign exchange market; in fact,Forex Trading Basics For The Clueless Articles the name is derived from those two words. (fo = foreign, ex for exchange.)  While the traditional markets are trading stocks and shares, actually bits of ownership of a company, the forex market trades only in money from one country to another.

The primary purpose of the forex market is to assist international trade and the investment each country makes in one another. The market can help to determine the actual value of the currencies of each country.

On the stock market, there can be trades that are as small as only a few shares from one person to another. In forex trading, the trade volume is much, much larger with an average, reported daily trade turnover equal to trillions of dollars. Another major difference between the stock markets and the foreign exchange trading markets is the timing - because the various countries are in different time zones, foreign exchange trading can occur 24 hours a day, every day of the week.

Buying a few shares of a certain business’s stock might seem fairly simple, and you can usually choose the ones that will continue to do well based on the general knowledge that you have of that company. On the other hand, there are so many factors that can directly influence the status of one company and its currency that forex trading becomes a larger gamble. It is mostly speculation when you are trading one currency for another because while one can have a certain value one day, it may have far less or far more value the following day.

Foreign exchange trading can be influenced by a number of different factors including the political turmoil of a region and even something as simple as the weather. A terrible disaster in one country can greatly affect the value of its currency on the foreign exchange trading market.

Because there are so many complexities involved, foreign exchange or currency trading is usually not where a beginner starts. It may take many months to figure out the ins and outs of the market, let alone figure out how to make a profitable trade.

The three major cities in the foreign exchange trading market are London, New York City and Tokyo. With London being the leading force in the currency exchange, the prices for a particular currency or exchange are quoted via London based pricing. That does not mean that London is always part of a trade, simply that the London quoting price is typically used in reference to a majority of the active trades on the forex trading market.