The term 'Forex' or 'FX' is short for 'foreign exchange'. What is being exchanged on this market is not stocks or bonds, but currencies from around the world. In other words, the Forex market is the place where U.S. dollars, Euros, Yen and other major currencies are bought and sold. 

It represents the largest financial market in the world by volume. Starting with the simplest example of currency exchange that most people are familiar with is that of exchanging one currency for another when travelling overseas. 

Sometimes you get more for every dollar you exchange than other times. You will notice that foreign exchange rates never remain the same and are constantly changing. This volatility in exchange rates can enable you to earn sums of money in the forex market with forex currency trading.

The aim is to exchange one currency for another in the expectation that the currency you bought will increase in value compared to the one that you sold. Currencies are traded through a forex broker and the currencies are always quoted in pairs, for example (EUR/USD).

In any currency pair the base currency is the first one displayed and will be the one that is going up in value if the currency pair is going up and if the currency pair is going down then the base currency is weakening.

The most widely traded currency pairs are known as the ‘majors’ due to their volume and liquidity in the market. They are (EUR/USD) (USD/JPY) (GBP/USD) (USD/CHF)

You will soon learn that it is normally cheaper to trade with these pairs. Currency that trades against the U.S. dollar is the most popular because it is the most liquid and volatile. There are many different currency pairs to choose from however to get started with forex currency trading, you only need to concentrate on the majors.

Forex Market Explained
In the Forex market, currencies are exchanged through a floating exchange rate system. The Forex market has no central exchange and has no trading floor. It is considered as an 'over-the-counter' (OTC) market and is run electronically within a network of banks known as the interbank market. The Forex market runs continuously 24 hours a day from Sunday afternoon to Friday afternoon.

In the past, the Forex interbank market was not available to small investors and only the world’s largest banks were allowed to trade openly. Since the introduction of the internet, forex brokers have emerged to cater for the needs of almost any individual with the use of online forex currency trading platforms. The trading platform is where you will execute all of your trades with your broker with just a few clicks of the mouse.

Individual traders like you and I are known as “Retail Traders”, and must go through retail brokerage firms in order to buy and sell currencies on the foreign exchange market. Today, however, you can buy and sell currencies at the click of a button, in much the same way as you buy and sell stocks. Everything has been automated and linked up electronically. Exchanges in the Forex market happen instantaneously.

You should know up front that online retail trading by individuals (represented by online retail brokers) is still in its infancy. Prior to the Internet, and subsequent availability of real-time market data, it was virtually impossible for the average person to get involved in the foreign exchange market with any degree of success.

Commencing Forex Currency Trading
Although it is now easy to commence Forex currency trading, it can be quite risky and may not be suitable for all investors. Forex currency trading is not as straight-forward as trading stocks on the stock exchange. There are many, many variables to take into consideration when it comes to determining fluctuations in currency values.

Success with forex currency trading requires application of money management skills. While Forex currency trading offers opportunity to make significant sums of money, more than half of FX traders lose money. You should only trade with money you can afford to lose so only trade with real money when you gain enough confidence.

Before you can commence Forex currency trading you would need to find a regulated forex broker that offers a free demo account which allows you to access the online trading platform. This is an excellent way to learn how to use the platform without trading with real money. It is important to practice for at least one month before you start trading with real money.

Unfortunately, there are unscrupulous companies out there who take advantage of this 'learning curve', and attempt to scam would-be retail traders. Forex opportunity scams are still prevalent. Therefore, it is imperative that you learn the basics of Forex before you get involved with any 'advanced' training courses, trading systems or online brokers...

Online currency trading: Get the best trading system and learn how to trade using our training guides.

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