What Is Forex Trading?

by Krantcents · 24 comments

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The foreign exchange (Forex) market is where currencies are traded.  It is no different than any other commodity.  It is the largest international market although there is no central market.  Why have a Forex market?  It is intended to facilitate international trade.  Although the U.S. dollar is the basis for a lot of trade, it is not the only currency.  In fact, the value of the U.S. dollar is based on other currencies.

Who trades foreign currencies?  It ranges from large banks, governments, currency speculators, institutional investors, international corporations and travelers.  I never thought I was a forex trader when I exchanged currency at the bank before I traveled to Europe.  Perhaps I contributed to the exchange of currency. The most traded currency is the U.S. dollar which makes up about 85% of all trades.

How are Forex rates determined?  Economic factors may be the biggest contributor to their value in exchange.  For example, our debt, credit rating and economic conditions strongly influence U.S. dollar value.  Political conditions such as stability of government and political structure.  Market psychology similar to the stock market is influenced by what people think about a particular currency.  Trading currencies is affected by a variety of things including electronic trading.

George Soros was famous for currency speculation during the early 1990s.  He sold short $10 billion in British pounds and earned more than a billion in profit.  He saw a weakness in the British pound and took advantage of the market and profited from his move.  His is probably the most famous currency speculator, but not the only one.  Currency speculation is the practice of engaging in risky financial transactions in an attempt to profit from short or medium term fluctuations in the market.

Speculators can artificially inflate vales or decrease values.  It can create an economic bubble and a lot of volatility.  Currency speculation involves buying, selling, and holding currencies to make a profit from favorable fluctuations in exchange rates.  If you are interested in trading foreign currency, you may benefit from the tools on Forex Loft.  Forex is the world’s biggest financial market and you can do very well if you know what you are doing.  Four trillion dollars is traded daily on markets that are open 24 hours a day 5 days a week worldwide.

Final thoughts

If you decide that you want to trade foreign currency, you need a broker.  Before you embark in foreign currency trading, understand that you lose money.  It is similar to buying stock, you think it will increase in value and it doesn’t.  Your trade will result in a loss.  Most traders win some and lose some!  This is a risky business and you should know a lot about it before you make a trade.

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Daisy @ Prairie Eco Thrifter May 4, 2013 at 6:59 am

Forex trading is a bit risky for me, I think. My brother has tried to dabble in it a bit and it resulted in a loss for him. My risk tolerance is just not high enough for it.

Krantcents May 4, 2013 at 7:10 am

I am risk adverse too! The funny thing is every time I travel I am trading in Forex.

Michelle May 4, 2013 at 7:02 am

I’m with Daisy, it seems too risky for me too, and until I learn and understand it 100%, I think I will wait :)

Krantcents May 4, 2013 at 7:11 am

I agree! When I travel overseas, I am Forex trading and I don’t even think about it.

Tom Gorski May 5, 2013 at 11:55 am

Needless to mention, there is a long way to go before I actually end up learning its dynamics thoroughly..however this post is of considerable help..thanks..

Krantcents May 5, 2013 at 12:46 pm

You’re welcome! One of the things I realized writing this article is you are participating in foreign exchange if you travel or buy foreign products.

Greg@Thriftgenuity May 6, 2013 at 10:20 am

Can’t say I know a lot about Forex trading, but as others have mentioned, I don’t think it is for me. As you mention, this is certainly something that I would not do on my own.

Krantcents May 6, 2013 at 11:31 am

Every time you travel or buy something that is manufactured overseas, you are participating in foreign exchange. Forex trading is the next step and is risky if you do not know what you are doing.

Kris @ Everyday Tips May 6, 2013 at 6:38 pm

There are so many investment vehicles out there that I never considered Forex trading. Maybe if I had an unlimited amount of money I wasn’t willing to lose. But, since that isn’t the case, I will stick more with what I know. Very informative though!

Krantcents May 7, 2013 at 6:54 am

Thanks, Forex trading is risky, but it is hard to avoid in a global economy. So much is made overseas.

Buck Inspire May 7, 2013 at 1:04 am

I have heard of Forex trading, but don’t understand it enough. Also isn’t the order of risk stocks, options, and Forex, with Forex being the riskiest? Too rich for my blood, but thanks for the overview!

Krantcents May 7, 2013 at 6:55 am

It is part of our global economy whether we like it or not.

Jenny @ Frugal Guru Guide May 7, 2013 at 11:03 am

Just about everyone in Costa Rica is a Forex trader. Inflation was so bad when I was there that smart people kept their savings/checking accounts in USD and pulled out money in Colones as needed!

Krantcents May 7, 2013 at 11:07 am

Yes, you do not have to actually trade currencies on a foreign exchange market and you are still participating in foreign exchange. You are participating by virtue of a global market and products are made all over the world.

Osvaldo Lovins May 8, 2013 at 12:02 am

I used to lose a lot of money in Forex. I think best resources on Forex trading is here http://twentie.com/forex People miss important signals and make common mistakes. There, they teach Price Action, Select Indicators et cetera. You should check out.

Krantcents May 8, 2013 at 7:32 am

Thank you! Forex trading is risky and you should learn a great deal before doing it.

Automatic Forex May 9, 2013 at 7:31 am

Well I really enjoyed studying it. This tip procured by you is very practical for accurate planning.

Krantcents May 9, 2013 at 8:23 am

I am glad I could help.

funancials May 12, 2013 at 6:52 pm

I’m glad you mentioned George Soros in this…He’s one of the few people in the world I’ll listen to!

Krantcents May 13, 2013 at 7:33 am

Currency trading is still pretty risky, but Soros was successful. It helps to have a lot of money because you can afford a mistake or two.

Roger May 23, 2013 at 9:27 am

platforms are one of the main characteristics that must be taken into account for foreign exchange trading, and that is where you perform these transactions and must be supported by reliability and usability

Krantcents May 23, 2013 at 11:05 am

Thank you for your information.

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