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Understanding the Forex market

By: Samantha Standley   
Date Added : July 2, 2011 Views : 586

Forex stands for foreign exchange. A Forex market is a market where currencies of different nations are traded. In other words it is a market of Currency trading. Currency trading is similar to stock trading with subtle differences. Stock market is the trade of stocks while Forex is the trade of currency. In stock business the investors contribute money to the company which helps the company grow. The growth in turn increases the stock value. A company having a higher stock value has a higher profit margin. Hence stock market is all about investing in a particular company. On the other hand Currency trading is about investing in a particular country. In case of stock trading, shares are traded while in case of Forex, currencies are traded. In Forex, currencies can be traded individually or through a broker. Currencies are always traded in pairs. Dollars can be used to buy Euros or vice versa. A person buying American dollars is actually investing in the American economy. Thus political, economic and trade scenario of a country are important factors in Currency trading. It is important to monitor the political, economic and trade scenario of a country. A popular way of watching the market is with the help of indices.

The Forex trading can be better understood with the help of an example. Suppose a buyer buys few lots of Pounds/Euros at a rate of .75 with a time period of one month. The contract is thus known as Pounds call Euros put. If the price does not rise above .75 within the stipulated time period then the buyer does not execute the contract. In such a scenario the buyer loses the money spent in creating the contract and seller makes a profit. On the other hand if the price rises above .75 then the buyer executes the contract and sells the currency at the current price which has increased, there by making a profit.

Forex trading is a complicated affair. It is not advisable to start without having prior knowledge. A person who enters this market with half knowledge is sure to lose a great deal of money. Unlike the stock market the stakes are very high in Forex market. Before treading into the FX market, one needs to find an experienced guide. Most guides in real life are brokers who charge a fat commission. There are online guides where one can get the initial dose free of cost. The online guides are in form of websites which help in taking the initial step. They usually offer demo accounts where one can learn ways of Forex market without actually investing a single dime. They also teach how to study the market and make necessary observations. They teach the concept through a series of video tutorials available in their website. They also provide various kinds of trade reports which provide an in-depth study of the Forex markets. They provide various kinds of tools which help climb the ropes in the FX market. Such websites can be found with considerable amount of online research.

Samantha Standley is the author of this article on Forex. Find more information about Forex Trading here.

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