What Is Forex Trading?

what us forex trading

Forex trading refers to the act of buying and selling currencies on the foreign exchange market. There can be numerous reasons for engaging in currency trading – practical ones such as traveling abroad and needing local currency conversion, to more speculative ones such as betting on future direction of particular currency pairs – but no matter your motivations for engaging in forex trading it can be both exciting and profitable!

There are three primary methods of trading forex: the spot market, forwards market and futures market. Of these three forms of forex trading, spot is the dominant segment that deals with immediate trades; forwards and futures markets involve custom-designed contracts negotiated prior to future transaction whereas futures exchanges regulate their respective markets.

The forex market is global and operates around-the-clock, with major trading centers located in London, New York, Tokyo and Sydney. Large financial institutions make up most of its participants while individual speculators also play a growing role.

Currencies are traded in pairs, and their relative price to one another determines their relative values. For instance, if the US dollar strengthens against the euro it would become cheaper to travel there (your USD can buy more EUR) and import goods (since more EUR can be purchased). Conversely, if it weakens against it this could become more costly to travel abroad and exporting companies may suffer financially as a result.

Outside of basic supply and demand forces that drive markets, there are numerous other forces at work such as interest rate differentials, central bank policies, or political climate issues in any given country. Therefore, when planning on trading any particular market(s), do your research beforehand as well as create an effective risk management strategy which includes stop losses, limit orders and taking profits as part of an effective risk management strategy.

Before beginning forex trading, it’s necessary to open a standard brokerage account with an approved broker. You may open an individual, joint, or corporate account that has margin privileges approved. Once your account is open, use thinkorswim as your forex platform to monitor the market, plan your strategy, and execute trades. In addition to offering trading capabilities, good forex platforms allow users to set automated alerts for entry/exit points to help stay abreast of market opportunities and reduce missed opportunities.

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