Making Money With Forex

Understanding Forex Trading

The Foreign Exchange, or forex, is where foreign currency is traded. It is not a physical place, but a platform for foreign currency to be traded. Basically, you are trading the currencies of different countries against each other.

A few key terms may help you understand forex trading before getting involved. Exchange rate is the first term. This is the value of one currency, expressed in the terms of another currency. If you are trying to determine the worth of the Euro, for example, you may describe it as how many US Dollars it is worth. Next, a currency pair is the two currencies making up an exchange rate. You are exchanging one currency for another. Another term is base currency, the first currency in a pair and the currency of an investor’s account. In contrast, counter currency is the second currency in a pair.

An example of a forex trade is purchasing 800 Japanese yen with 10 US dollars, if $1 US equals approximately 80 Japanese yen. Since the value of different currencies fluctuates on a regular basis, you could make a profit if the Japanese yen increased in value over the US dollar.

Forex trades are placed by either a broker or a market maker. A limited amount of people are allowed to actually trade on the floor of the NYSE (New York Stock Exchange). Therefore, different brokerage firms have people who represent them with seats on the NYSE and perform the trades for them. In contrast, a market maker is usually a company that holds shares in a company or a specific security and sells these to customers at a rate which they have more control over. However with forex trading, the market maker represents a country’s currency, not a company.

Studying currency pairs and doing research can make forex trading worthwhile.

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