What is Forex Trading

Forex trading involves trading positions on currency pairs, the values of which are compared relative to one another. Because Forex trading is a little more abstract and requires more research, many people believe Forex trading is reserved only for professional stock market traders.

That’s certainly not true! Anyone can learn to trade Forex and make money on this unique market. If you don’t know where to start, you’ve come to the right place.

When most people think of trading on the stock market, they imagine buying or selling individual stocks, which are essentially ownership pieces of individual companies. Buy 10% of the available stock for a company, and you own 10% of the company.

However, the stock market also allows you to trade a variety of other financial assets and instruments, including currencies. That’s what forex trading deals with: buying and selling currencies, including commonly used currencies like the US dollar, the euro, and the British pound (represented by the acronyms USD, EUR, and GBP, respectively).

Currencies around the world have value relative to each other that can be affected by a variety of things, like market conditions, national decisions, and more. For example, the value ratio of a US dollar to the NZ dollar at the time of this writing is $1.00 to $0.62. In other words, one US dollar is worth more than an NZ dollar.

So, why would you trade currencies? Forex trading doesn’t involve trading individual currencies but instead trading Forex “pairs”.

In a nutshell, the goal of Forex trading is to make money when the exchange rate between two currencies (called a “pair”) changes. With a given Forex pair, you’ll have two currencies on either side.

Let’s take a look at an example:
Say you have the above exchange rate of US$1.00 to NZ$0.62

When you trade Forex with this pair, you’ll speculate as to whether the price of the US dollar or the NZ dollar will go up or down. If you make the correct guess, you’ll make money on the difference. If you make the incorrect guess, you’ll lose money