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Forex is the short word for Foreign Exchange. FX is the shorter term for Forex. The world currency market is open 24/7 5 days a week (closed only at weekends). As one market closes (for example London) another market (New York and Asia) opens.

Forex trading is the simulataneous buying of one currency and selling of another currency. There are numerous forex brokers that will provide an online platform for buying and selling currency. You can make a profit if you successfully trade at the best times. There is always a difference between the buy and sell rate as this is how the forex broker makes money (the difference between the buy and sell exchange rate is known as the bid/ask spread). Spreads are larger with Exotic currency pairs comared with Major currency pairs so this may affect your decision which currency pairs to trade.

Forex Market Participants

Large banks make large currency transactions every day. Futhermore large companies that buy supplies from abroad such as Apple, IBM and more will have to exchange currency to buy components or sell products abroad. Governments and Central Banks such as the European Central Bank, Bank of England and the Federal Reserve regularly participate in the currency markets. For example these banks will change their interest rate to control inflation. If central banks believe their currency value to be too high or too low they can begin massive buy or sell operations to change the exchange rate(s). Many companies and individuals also speculate on the Forex Market. The Currency Speculators represent a large proportion of trading volume and range from big companies such as pension funds, asset management companies and banks to investors on the high street using online forex brokers.

No Commision

No fees, no exchange rate fees, no brokerage fees and no government fees are some advantages for people trading forex.

Leverage

Leverage is the term which means you can with a small deposit actually control the investment of a large contract value. For example if a broker is offering 50-1 to an investor this means that by investing $50 the investor has control over 50 times the value ($2,500). This means that if the price goes up 10% you will gain $250 not just $5. However if the market declines 10% you lose $250 rather than losing $5 (whereby you would be $200 in losses from a %50 investment). Therefore you need to manaage risk and decide to exit (the buy/sell position) before making huge losses.

High Liquidity

With Forex markets you can always trade the currencies you want to and at the time that you choose. This high liquidity makes it easier to make decisions compared with stock and share investing because stockmarkets are not always open.

Forex vs. Stocks and Shares

Most investors trade the major currency pairs (of which there are 4). With stocks and shares there are many to consider and different business structures making stocks and shares harder to choose between. Minimal or no commission is charged by Forex Brokers as they rely on the bid/ask spread (difference between the buy and sell exchange rate). Furthermore if a large fund makes a stocks/shares trade in a particular company it alone can affect the price of the shares/stocks. Whereas it is almost impossible for an individual company to affect exchange rates.

Spot Forex

Spot exchange rates are rates that you can exchange currency at the current time. This immediate 'on-the-spot' exchange rate is the rate quoted for foreign exchange brokers.

Futures

Futures are are contractual agreement to buy a certain currency at a specified price at a specific date in the future. You choose the time period.

Options

An option contract gives the buyer the right or the option (but not the obligation) to buy or sell at a specific price an asset at the expiration date.

Exchange Traded Funds (ETFs)

ETFs are exchange traded funds that offer expoure to single exchange rate or a basket of currencies. ETFs are portfolios managed by financial institutions and the company generally offer shares of the fund to the public which are trading like stocks and shares.