Introduction: Forex 101 | CountingPips Forex & Currency Trading Blog

Introduction: Forex 101

by CountingPips.com

The term "forex" is short for foreign exchange and refers to the foreign exchange market. Trading in the forex or foreign exchange market is essentially the exchanging of one foreign currency for another in order to profit on the trade. Forex is also often referred to as currency trading or fx. The forex market is the largest financial market in the world with a traded volume that totals 3.2 trillion dollars on a average day. As a point of reference, the forex market is larger than all of the stock markets in the world combined.

However, the forex market differs from most other financial markets. Trading is not formally regulated through an exchange or clearinghouse like the New York Stock Exchange or Nasdaq and there is no central location to trade forex. Instead, the forex market is an interconnected electronic network made up of financial institutions, banks, businesses, brokers, investors and individual speculators. Trading takes place all over the world and goes on 24 hours day, 5 days per week.

The market opens for trading on Monday morning in Asia, New Zealand and Australia(Sunday afternoon in the U.S.) and it closes at the end of the business day on Friday in the United States(5 pm EST). The forex market has three major trading sessions: the Asian session, the European session, and the United States or North American session. Trading begins with the Asian session followed by the European and then the United States. The Asian session follows the conclusion of the U.S. session and restarts the cycle.

The forex market has been gaining popularity in recent years as the internet has made it easier for more participants to access this market and as many barriers to entry have been removed. Trading in the forex market was difficult for individual investors and was primarily just the domain of financial institutions, banks, businesses, hedge funds, and high net worth investors. The internet has made forex trading faster and more efficient with information and education materials more easily accessible. Online forex brokers allow individuals to trade on free demo accounts where they can practice and hone their skills before trying their hand at trading real money. Most online brokers do not charge large upfront commissions and a real money trading account can be funded with as little as a $100 US. There are also now thousands of web sites, blogs and information portals dedicated to forex trading and providing relevant market information.

Although the forex market may not be as widely known and understood as the major stock markets of the world, with its growing popularity, the internet and technological advances in trading, it is well on the way to catching up.