What Is Forex Trading?

With the advent of FX currency futures, a lot of people get confused by the currency futures contracts, and the spot fx markets. Although the Chicago Mercantile Exchange does a great job of having its FCM's publicize their currency futures - Forex is actually in reference to the spot fx markets. Below is a fairly common write-up explaing what Forex is all about. brokerage firm probably has something similar to this - so please check multiple sources.

The Spot Forex Market is a 24-hour international market where banks, hedge funds, international corporations, and individuals from all over the world are active participants. The sheer scope of market participation and volume of activity insures around-the-clock activity making this an ideal market for trading at all times.

Currencies have the tendency to trend heavily and rarely spend much time in tight trading ranges. These two characteristics are central for short to medium term trading. On a daily basis, traders can easily identify new trends and breakouts providing multiple opportunities to exit and enter positions.

The Foreign Exchange market allows positions to be leveraged 200:1, providing tremendous upside potential. This means with $1000 margin deposit you can place a $200,000 position in the market. Spot Foreign Exchange provides much better leverage then the futures market, which requires a 2%-5% margin and the equities market, which requires at least 50% initial margin. A 1% movement in the FX market can triple the value of your entire investment. Leverage is a double-edged sword, and without proper risk management, the market can move against you and cause the lost of initial investment.

In the Foreign Exchange market there are no restrictions on short selling, which means that a trader can take advantage of an upward or downward market. Traders can buy or sell a currency with equal ease.

Two Ways to Trade:

There are two basic approaches to analyzing currency markets, fundamental analysis and technical analysis. The fundamental analyst concentrates on the underlying causes of price movements, while the technical analyst studies the price movements themselves.

This article is continued on the next Forex page... Click here.