Make Money Investing . | . Earn Money on the Internet . | . Debt and Loans . | .

The Basics of Forex

Forex investing may seem scary but it's simply buying one currency and selling another at the same time. Forex is derived from the words Foreign Exchange. It is the largest financial market in the world with turnover daily of US$1.9 trillion.

Each transaction takes place between two entities or individuals. Unlike the stock market there is no central exchange, all the trading is over the counter. Forex trading exchanges take place over the phone or through electronic networks. There are websites that provide the required network and trading can take place through accounts set up through the networks.

Other differences between the stock market and forex trading include:

The foreign exchange market is open 24 hours a day from 5:00 PM Sunday evening to 5:00 PM Friday night. It's only closed for a 48 hour period. The stock market is open during business hours and closes in the evening.

Stocks can have huge swings in a 24 hour period, climbing hundreds of points one day and crashing several hundred points the next day. Currencies fluctuate much less and more slowly. On a day by day basis the change in major currencies can be less than 1%. Profits are made on a fraction of a percent in changes.

The basics of forex trading can be covered in any good Forex book. Some brokerages which facilitate the trading between individuals and investment companies will set up practice accounts. The trader practices using the account to get a feel for the market and how it works. It pays to learn as much as possible about the markets, the countries, and forex trading before attempting to do so for profit.

The eight major currencies traded, which account for 85% of the trades are:

USD - The US Dollar
EUR - The currency of the European Union "EURO"
GBP - The British Pound
JPN - The Japanese Yen
CHF - The Swiss Franc
AUD - The Australian Dollar
CAD - The Canadian Dollar

Currencies are traded in pairs with the base currency quoted first. The US Dollar is often the base currency and is always valued at one. The traded currency is quoted in relationship to the base currency. So if you see USD/JPY 113.10, it means that $1 in US dollars will buy 113.10 Yen. If the dollar strengthens it means that $1 can buy more yen. If it weakens, it means the $1 can buy less yen.

The value of a country's currency is influenced by a number of factors: The economics of the country, its trade deficit, political and social environment.

Forex trading can be exciting and profitable. There are a number of discussion boards, forums and forex blogs that discuss the finer points of the foreign exchange market.