What is Forex trading? Forex trading is the trading of pairs of national currencies. It is the foreign exchange market whose main exchanges are London, New York, and Tokyo. What is Forex trading? It is the means by which international companies and nations can buy and sell currencies and effectively set exchange rates. What is Forex trading? It is a market where an ordinary trader can profit from the huge volume and high liquidity as trillions of dollars worth of currencies are traded around the world. Today’s Forex markets emerged in the 1970’s when the post World War II Breton Woods agreement on currency values broke down. National currencies were allowed to “float” in value against each other on open markets. Today traders concern themselves with factors influencing the EUR/USD pair or the Yuan exchange rate as they seek to profit from the varying rates of exchange among the currencies of the world.
Traders typically trade what are called the major currencies in the Forex market. These are the US dollar, the Euro, the Yen, the British Pound, the Swiss franc, the Canadian dollar and the Australian dollar. These currencies trade against each other in extremely high volume and with high liquidity. These factors typically make technical trading more accurate and more profitable. Traders will follow the market for the US dollar versus the Euro, for example, looking for price patterns that predict a price breakout either up or down for one currency versus the other. By reading these patterns successfully and executing trades in a timely manner a trader can profit from even small movements in currency value. This is because the trader can trade with a large amount of leverage in Forex trading. Understanding the Forex markets entails knowing where you can trade, how to set up with a broker and get compatible software for online trading, and how to successfully read technical trading patterns to profit from swings in the market for a given currency pair. What is Forex trading? It is trading a highly liquid and high volume market with the potential for substantial profits for the trader who does his homework and executes effective trades.
The big traders in Forex trading are central banks and, to a lesser degree, large institutional traders. What is Forex trading to the central banks? It is a means of influencing, some say manipulating, the value of their nation’s currency. An example that has been going on for years is the exporting economies of Asia who have habitually purchased US dollars to keep the dollar strong and their own currency relatively devalued. The reason for this is that these nations can then sell cheaper products to North America especially but also to Europe. If the currencies were allowed to truly float products from Japan, Taiwan, and China would be more expensive in their export markets and they would lose customers. Forex traders can profit from this phenomenon by anticipating when foreign banks will intervene in currency markets and in what manner. Typically the question is not what they will do but when they will do it, so timing is important. Good Forex advice is to keep track of what central bankers are saying and what they typically do when they attempt to adjust foreign exchange rates.
More Resources
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