If you have seen advertisements on TV, on the internet or in magazines for forex trading, you could be wondering what is forex. The word forex is an abbreviation for foreign exchange, which is the exchange of one currency for another on the global money markets. It is often shortened even further to FX.

Most people already have some experience of exchanging currencies when they are going to a foreign land for business or on vacation. You most likely find out as well that the banks are regularly changing money for businesses who have an import from or export to foreign countries. However, an estimated 70%-90% of foreign exchange transactions are speculative. This implies that the individual or institution making the transaction has no plan of taking delivery of the currency that they have ordered, but wants to trade it back at a profit. This is forex or currency trading.

Most most of the globe's currencies no longer have a fixed exchange rate, so their values or rates are continually oscillating. When a nation is experiencing an economic boom its currency value will typically be strong, or high. When a country has an economic downturn, its currency will in most cases fall as well.

As minor changes in exchange quotes are happening every minute to each currency, there is a lot of potential for financial traders to earn money by buying a currency whose value is going up against one whose price is weakening. Unlike with equities, you are always dealing with a pair of currencies because you have to give money in one currency to get it in another. Every currency is denoted by three letters and the most important crosses will look like this: EUR/USD (euro/US dollar), GBP/JPY (British pound, Japanese yen) etc.

Unlike stocks certainly you will not receive any dividends on a currency position. You have to act on rising and falling trends or economic and financial events to decide when to buy and sell. You then close the position by exchanging the opposite way and if the market has moved substantially in the direction you predicted, you will end up with a profit.

Until nowadays the market was entirely in the hands of banks and other institutions with large investment funds but the evolution of the internet has meant that much smaller traders may enter the markets via their home PC.

You need a broker and there are several who cater to the smaller trader by providing mini forex trading accounts so that you can begin with just a few hundred dollars. A larger trading capital is recommended. Like most speculative trading, this is a risky type of investment so you should only be trading with money that you do not need for other purposes. Luckily, most brokers offer free demo accounts where you can master trading skills by practicing in simulation mode before you ever risk a real cent.

In addition to practicing on a virtual account, what can be extremely useful is using forex signals in your trading. Forex signals are basically price forecasts and trading recommendations from a forex market expert or an experienced trader. There are many forex signal providers available online. But never forget to check the past performance first, as only reliable forex signals will make you money, not losers.

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