The (Foreign Exchange) Forex Trading Market Explained.

Top Ten Basic Terms in Forex Trading and Their Definitions

Forex refers to the foreign currency exchange market, the world’s largest financial trading market.  Some terms that help a person understand Forex trading include:

Bid – to buy

Ask – to sell

Liquidity – financial ease of transaction, i.e. cash

Trading volume – the amount traded

Bid/ask spread – the difference between the proposed buying price and the actual selling price

OTC – over the counter

Exchange rate – the difference between currency values; for instance, a Canadian dollar is valued at .86 of a US dollar

Hedge funds – large mutual funds companies that control vast amounts of money and are able to manipulate the value of a currency through speculation

Central bank – the national bank of a nation, which usually exerts control over the value of that currency

Forex trading is in essence the investment in the currency of one country.  Large international corporations that do business in many nations find value in keeping their cash reserves in a variety of nations, and holding their funds in a variety of ways.  For example, a US company may have a percentage of its working capital in US dollars, but if it does quite a bit of business in Europe may also find it beneficial to keep a percentage of its money in Euros, in European banks.  Many individual investors over the years have discovered that there is profit to be made in investment and speculation in the currency or forex markets.

As an example, during the 1970’s the German deutchmark was changing rapidly in value.  It was worth anywhere from 1.7 marks to the US dollar to 2.5 US marks to the dollar.  When the mark was worth 2.5 it was beneficial to spend dollars buying marks, since the mark would buy more goods or services at that rate.  When the mark was only worth 1.7 to the dollar there was less incentive. 

The forex market itself is not unified.  There are many small forex markets specializing in trading various currencies.  The most commonly traded currencies in forex trading are the US dollar, the Australian dollar, the British pound sterling, the Japanese yen, and the European Euro.  The values of these currencies will vary depending on the market in which an investor is looking, so there is really no such thing as a single, unified dollar rate, but instead there are several dollar rates, which are different according to the market where the trade is occurring.  The major cities in which trades occur are London, New York and Tokyo.  This covers a 24 hour clock. When Asian trading ends, European trading beings, and when European trading ends, then American trading opens.  Of course when American trading ends, it is time for Asian trading to open again, and so on. 

The most commonly traded currency is the US dollar, involved in 89% of all trades.  This is followed by the Euro involved in 37% of all trades, then by the yen in 20% and the pound in 17%.  The fastest rising currency in trade is the Euro, but the US dollar is still widely considered the anchor point, and the currency to watch to judge how others will react.  Differences in value of currencies come form the daily news.  Changes n gross domestic product growth, in inflation, interest rates, budget and tirade deficits, surpluses and other economic conditions will cause changes in currency values.  Investors and traders for this reason follow the news very closely.  In fact, there are 24 hour cable news channels and many web sites devoted to news of value to currency traders.

It wasn’t long ago that the nation of Iran removed its currency from European investment banks.  In anticipation of rising world tensions they removed their currency to become less vulnerable to freezing of their assets and to economic warfare, of which forex trading could be a part.  The forex market is very susceptible to rumors.  In fact the central banks of some countries have at times manipulated the value of their currency by spreading rumors about hikes in interest rates and other economic news that could have an impact on the value of the currency. When this news is false it is called a dirty float.



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Introduction to Online Forex Trading
Current Forex Currency Rates
Forex Trading
How to Get Started In FOREX Trading
FOREX versus Futures Market
FOREX versus Stocks
FOREX Trading Philosophy
Fundamental Analysis In Forex Trading
Forex Technical Analysis - Part 1
Forex Technical Analysis - Part 2
FOREX Trading Strategies
Trading Currencies on Margin
Currency Option Marketplace
FOREX Signals
How to Read FOREX Quotes
Calculating FOREX Profits and Losses
Risks of FOREX Trading
FOREX Training
FOREX Trading Software
FOREX Brokers
FOREX Glossary
Forex Updates and Training
Crash Course in Forex Education
How to Recognize Patterns in Forex Trading Markets
Defining Exotic Currencies and Their Impact on Forex Markets
Defining Trading Trend and Ranges in Forex Trading
Mind Games – The Psychology of Forex Market Trading
Crossing Currency - What’s This Mean to Forex Traders
Money Management Basics for Forex Traders
Choosing Your Forex Broker
Expensive Beginner Forex Trader Mistakes
The Elliott Wave Theory for Forex Markets
Failsafe Facts to Guarantee Failure in Forex Trading
Five No Nonsense Strategies in Forex Trading
Global Expansion and It’s Reaches within the Forex Market
Hedging in the Forex Market
The Important Ways to Keep From Losing in the Forex Markets
An Overview of the Euro’s Performance in the Forex Markets
Six Trading Tips for the Forex Newbie
The Lowdown on Day Trading
Interpreting How Interest Rates Drive the Foreign Exchange Markets
The Basics of the Bollinger Band Technical Indicator in Forex Markets
Relative Strength Analysis in Forex Trading
The Basics on Understanding Forex Options
Forex Charts – What Are They and How Do You Read Them
Interpreting the Future of the Oil Marketplace and How It Affects Forex Trading
Top Five Economic Indicators that Drive Forex Trading
Rules for Trading in Forex Markets
How Does the Japanese Yen Stack Up Against the US Dollar in Forex Markets
Pivot Points in Forex
The Ins and Outs of Trying Out a Forex Demo Account
The Top Currencies to Watch in the Forex Trading Game
Defining Moments Regarding Trading Trends and Ranges with Forex
Top Ten Basic Terms in Forex Trading and Their Definitions
Forex Folklore Investment Myths in the Market
Five Economic Driving Forces that Influence Forex Trading
Day Trading All You Wish You Did Not Have to Know
Time line for Daily Forex Trading When are the Optimum Moments
Forex Relative Strength Analysis
How Forex Quotes Can Influence your Trading Tactics
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