I received great feedback from my first post on this blog, Top 3 reasons why I trade forex from home. Some of the comments made me realize that some people had never even heard of forex trading, and others had heard the term, but weren’t quite sure what it was about. So I thought that I should post a basic overview of forex trading.
Forex is an abbreviated form of Foreign exchange, and can also be abbreviated as FX. It just happens to be the largest financial market on the planet, with a daily turnover of $3.98 trillion. The forex market is the place where currencies are bought and sold, in real-time, 24 hours a day.
The basic idea of forex trading is that, if you think a currency will go up relative to another currency, you buy. If you think it is going to go down, you sell. If you are right, you make money. If you are wrong, you lose money. The main idea, then, is to be right more times than you are wrong. And there are ways to cut your losses and let your winners ride, so one right call can wipe out twenty wrong calls.
One of the most famous currency trades ever was made in the 1990’s by billionaire George Soros. He had an opinion that the British Pound was going to drop in value relative to the German Mark, so he bet against it – He sold the Pound. What happened next is the stuff of history — the Pound declined steeply relative to the Mark, and Soros took home a cool $1 billion in profit. Not a bad system, where you can profit off of something going down.
The forex market is not limited to just banks and billionaires anymore. You and I can participate as well. There are two requirements; one must be over the age of 18, and have a funded account with an online forex broker. There are many good forex brokers out there, and I will review the best ones in future posts. Most even offer a practice account where you can trade with ‘practice money’ to get started, learn, and get the hang of things.
