In trading forex, there are many things that you should know in dealing with the forex market, and you also need to understand the nature of this niche if you’re goal is to become successful in the business. Surely, you have already heard of some of those terminologies like forex and fx (shortcuts for foreign exchange), currency trading market, currency market, etc… all of which are different names for the market. Generally, the forex market is an international market wherein the currencies of different countries are traded and exchanged.

Every nation in the world is involved in the market, so there's always the possibility of trading and exchanging currencies with most of the nations. That's why it runs 24 hours a day and five days a week, starting at 5pm EST (Sunday) and ending at 4pm EST (Friday), New York. And in here, currencies are being traded and exchanged.

The market began when the U.S. abandoned the gold standard (which gave every currency a value related to the U.S. dollar and was introduced for the purpose of stabilizing the world economy back then) and the values of all the other currencies had undergone change, with the banks opting to exchange currencies for profit (buying low and then selling high), rather than just being a passive means of transferring and exchanging money from one country to another country (and this made each currency a commodity that can be traded from then on).

Common exchanges/trading involve the U.S. dollar against other currencies like the British pound, euro, Australian dollar, Japanese yen and Swiss franc, but it’s always possible to trade any of these currencies with one another. The value of a currency determines the value of the nation: if one nation is successful, then its currency increases, but if it is undergoing crisis, the value decreases. Take note that these fluctuations can be huge and will happen very fast, involving huge sums of money. Today, the total worth of transactions in the market reaches around $2 trillion dollars per day.

International banks, major corporations, investment banks and other large financial institutions govern the forex market, but it is possible for a private individual to trade in the market through brokers (with the Internet, this has become very common today). Many forex traders do business through their own PC in their own homes (these traders comprise 2 percent of the entire forex market). The systems used by these individual traders concentrate on lesser pairs, like the British pound against the euro.

The Forex market is truly a very big arena that will really dwarf the individual trader, but as long as you have the little capital that you’re willing to risk in the process, then you’re in! At times, you can start up with as little as $250. The forex demo account is great if you are one of the novices in trading, as it will serve as a practice for you to learn the basic principles of the market, before you invest a single cent and go into the real thing!

The British Stock Exchange or the London Stock Exchange is undeniably the global leader in trading of stocks in financial community. It owes’ its existence to its humble beginnings in one of London’s coffee houses in the late 16th century. At 300 years old, this prestigious financial giant holds the unbeatable record of being the first, and the oldest stock exchange house in the world, not to mention one of the busiest stock exchanges. A look at the British Stock Exchange milestones, is also, therefore, a history of this country’s financial milestones. In 1698, the first list of stock and commodity prices is issued in the Jonathan Coffee house. The stocks, called “The Course of the Exchange and other things”, are the first recorded financial activities in London. In 1761, one hundred and fifty stock brokers form a club, to buy and sell shares. In 1773, these brokers christen their financial house as “The Stock Exchange”. Finally, on March 3, 1801, the stock exchange market, as we know it, became a regulated financial exchange with the issuance of formal membership subscription basis. Despite the emergence of a number of stock exchanges all over the world, The London or British Stock Exchange remains a significant hub for international trading activities and because of its considerable experience, offers many valuable services. Here are some of the key services and benefits; you can avail of as a member: As a first time trader, you can be assured of guidance and training on the Exchanges rules and regulations, especially on the legal aspects. These training and consultancy session have all been created to help you understand and use this knowledge advantageously to trade in the markets you’re at. You’ll gain access to trade in different markets that offer a wide range of securities, equities, AIM securities and depositary receipts. You’ll learn about the dynamics of trading, the services and products of the British Stock Exchange’s other members, with their prices and contract details. How would you want to conduct your real-time trading activities? The exchange offers you a choice from the following: connect via Extranex (the exchanges’ direct link), CREST, or the STX, which is a private telephone network for securities professionals. Due to the British Stock Exchange’s expertise gained from centuries of stock trading, you can depend on having your company expertly steered to marketsThe British Stock Exchange or the London Stock Exchange is undeniably the global leader in trading of stocks in financial community. It owes’ its existence to its humble beginnings in one of London’s coffee houses in the late 16th century. At 300 years old, this prestigious financial giant holds the unbeatable record of being the first, and the oldest stock exchange house in the world, not to mention one of the busiest stock exchanges. A look at the British Stock Exchange milestones, is also, therefore, a history of this country’s financial milestones. In 1698, the first list of stock and commodity prices is issued in the Jonathan Coffee house. The stocks, called “The Course of the Exchange and other things”, are the first recorded financial activities in London. In 1761, one hundred and fifty stock brokers form a club, to buy and sell shares. In 1773, these brokers christen their financial house as “The Stock Exchange”. Finally, on March 3, 1801, the stock exchange market, as we know it, became a regulated financial exchange with the issuance of formal membership subscription basis. Despite the emergence of a number of stock exchanges all over the world, The London or British Stock Exchange remains a significant hub for international trading activities and because of its considerable experience, offers many valuable services. Here are some of the key services and benefits; you can avail of as a member: As a first time trader, you can be assured of guidance and training on the Exchanges rules and regulations, especially on the legal aspects. These training and consultancy session have all been created to help you understand and use this knowledge advantageously to trade in the markets you’re at. You’ll gain access to trade in different markets that offer a wide range of securities, equities, AIM securities and depositary receipts. You’ll learn about the dynamics of trading, the services and products of the British Stock Exchange’s other members, with their prices and contract details. How would you want to conduct your real-time trading activities? The exchange offers you a choice from the following: connect via Extranex (the exchanges’ direct link), CREST, or the STX, which is a private telephone network for securities professionals. Due to the British Stock Exchange’s expertise gained from centuries of stock trading, you can depend on having your company expertly steered to markets

If you are interested in trading currencies online, you will find that the Forex market offers several advantages over equities trading.

24-Hour Trading: Forex is a true 24-hour market, which offers a major advantage over equities trading. Whether it's 6pm or 6am, somewhere in the world there are always buyers and sellers actively trading foreign currencies. Traders can always respond to breaking news immediately, and P&L is not affected by after hours earning reports or analyst conference calls.

After hours trading for U.S. equities brings with it several limitations. ECN's (Electronic Communication Networks), also called matching systems, exist to bring together buyers and sellers - when possible. However, there is no guarantee that every trade will be executed, nor at a fair market price. Quite frequently, traders must wait until the market opens the following day in order to receive a tighter spread.

Superior Liquidity: With a daily trading volume that is 50x larger than the New York Stock Exchange, there are always broker/dealers willing to buy or sell currencies in the FX markets. The liquidity of this market, especially that of the major currencies, helps ensure price stability. Traders can almost always open or close a position at a fair market price.

Because of the lower trade volume, investors in the stock market are more vulnerable to liquidity risk, which results in a wider dealing spread or larger price movements in response to any relatively large transaction.

100:1 Leverage: 100:1 leverage is commonly available from online FX dealers, which substantially exceeds the common 2:1 margin offered by equity brokers. At 100:1, traders post $1000 margin for a $100,000 position, or 1%.

While certainly not for everyone, the substantial leverage available from online currency trading firms is a powerful, moneymaking tool. Rather than merely loading up on risk as many people incorrectly assume, leverage is essential in the Forex market. This is because the average daily percentage move of a major currency is less than 1%, whereas a stock can easily have a 10% price move on any given day.

The most effective way to manage the risk associated with margined trading is to diligently follow a disciplined trading style that consistently utilizes stop and limit orders. Devise and adhere to a system where your controls kick in when emotion might otherwise take over.

Lower Transaction Costs: It is much more cost-efficient to trade Forex in terms of both commissions and transaction fees. FOREX.com charges NO commissions or fees whatsoever, while still offering traders access to all relevant market information and trading tools. In contrast, commissions for stock trades range from $7.95-$29.95 per trade with online discount brokers up to $100 or more per trade with full service brokers.

Another important point to consider is the width of the bid/ask spread. Regardless of deal size, forex dealing spreads are normally 3-4 pips (a pip is .0001 US cents) in the major currencies. In general, the width of the spread in a forex transaction is less than 1/10 that of a stock transaction, which could include a .125 (1/8) wide spread.

Profit Potential In Both Rising And Falling Markets: In every open FX position, an investor is long in one currency and short the other. A short position is one in which the trader sells a currency in anticipation that it will depreciate. This means that potential exists in a rising as well as a falling market.
The ability to sell currencies without any limitations is another distinct advantage over equity trading. In the US equity markets, it is much more difficult to establish a short position due to the Zero Uptick rule, which prevents investors from shorting a stock unless the immediately preceding trade was equal to or lower than the price of the short sale.

Mar 29 - Apr 4 Filter
Date 12:18pm Currency Impact Detail Actual Forecast Previous Chart
Sun
Mar 29 5:45pm NZD Building Consents m/m 11.6% 13.0%
6:21pm AUD HIA New Home Sales 3.9% 8.6%
6:30pm USD Treasury Sec Geithner Speaks
7:50pm JPY Prelim Industrial Production m/m -9.4% -9.1% -10.2%
Mon
Mar 30 4:30am GBP Net Lending to Individuals m/m 1.3B 1.3B 1.2B
4:30am GBP Mortgage Approvals 38K 34K 32K
5:00am EUR Consumer Confidence -34 -33 -33
10:30am EUR ECB President Trichet Speaks
11:30am USD FOMC Member Duke Speaks
2:05pm CAD BOC Gov Carney Speaks
7:01pm GBP GfK Consumer Confidence -35 -35
7:15pm JPY Manufacturing PMI 31.6
7:30pm JPY Household Spending y/y -4.6% -5.9%
7:30pm JPY Unemployment Rate 4.3% 4.1%
8:00pm AUD RBA Deputy Gov Battellino Speaks
8:30pm AUD Private Sector Credit m/m 0.5% 0.6%
9:30pm JPY Average Cash Earnings y/y -1.4% -1.3%
10:00pm NZD NBNZ Business Confidence -41.2
10:20pm AUD RBA Assist Gov Debelle Speaks
Tue
Mar 31 1:00am JPY Housing Starts y/y -17.6% -18.7%
2:00am CHF UBS Consumption Indicator 0.99
3:55am EUR German Unemployment Change 53K 40K
4:00am EUR Italian Retail Sales m/m -0.4% 0.0%
4:30am GBP Index of Services 3m/3m -1.0% -0.9%
5:00am EUR CPI Flash Estimate y/y 0.7% 1.2%
5:00am EUR Italian Prelim CPI m/m 0.2% 0.2%
8:30am CAD GDP m/m -0.6% -1.0%
8:30am CAD RMPI m/m 0.2% 1.4%
8:30am CAD IPPI m/m 0.4% -0.1%
9:00am GBP MPC Member Tucker Speaks
9:00am USD S&P/CS Composite-20 HPI y/y -18.5% -18.5%
9:45am USD Chicago PMI 34.3 34.2
10:00am USD CB Consumer Confidence 27.8 25.0
6:30pm AUD AIG Manufacturing Index 31.7
7:50pm JPY Tankan Manufacturing Index -55 -24
7:50pm JPY Tankan Non-Manufacturing Index -26 -9
8:30pm AUD Building Approvals m/m 1.5% -3.7%
8:30pm AUD Retail Sales m/m -0.5% 0.2%
Wed
Apr 1 1:30am AUD Commodity Prices y/y 19.1%
2:00am EUR German Retail Sales m/m 0.2% -0.9%
1st-9th GBP Halifax HPI m/m -2.0% -2.3%
3:30am CHF SVME PMI 33.0 32.6
4:00am EUR Final Manufacturing PMI 34.0 34.0
4:30am GBP Manufacturing PMI 34.9 34.7
4:30am GBP Housing Equity Withdrawal q/q -6.2B -5.7B
5:00am EUR Unemployment Rate 8.3% 8.2%
7:30am USD Challenger Job Cuts y/y 158.4%
8:15am USD ADP Non-Farm Employment Change -660K -697K
10:00am USD ISM Manufacturing PMI 35.7 35.8
10:00am USD Pending Home Sales m/m 0.3% -7.7%
10:00am USD Construction Spending m/m -1.7% -3.3%
10:00am USD ISM Manufacturing Prices 32.4 29.0
10:30am USD Crude Oil Inventories 3.3M
All Day USD Total Vehicle Sales 9.3M 9.1M
2:10pm CAD BOC Gov Carney Speaks
2:45pm CAD BOC Gov Carney Speaks
7:50pm JPY Monetary Base y/y 6.8% 6.4%
8:30pm AUD Trade Balance 0.70B 0.97B
10:00pm NZD ANZ Commodity Prices m/m -4.6%
Thu
Apr 2 2:00am GBP Nationwide HPI m/m -1.5% -1.8%
All Day ALL G20 Meetings
4:00am CHF Gov Board Member Hildebrand Speaks
4:30am GBP BOE Credit Conditions Survey
4:30am GBP Construction PMI 27.6 27.8
7:45am EUR Minimum Bid Rate 1.00% 1.50%
8:30am EUR ECB Press Conference
8:30am USD Unemployment Claims 653K 652K
10:00am EUR ECB President Trichet Speaks
10:00am USD Factory Orders m/m 1.5% -1.9%
10:30am USD Natural Gas Storage 3B
6:30pm AUD AIG Services Index 32.2
Fri
Apr 3 2:00am EUR German Import Prices m/m -0.3% -0.5%
3:15am CHF CPI m/m 0.0% 0.2%
4:00am EUR Final Services PMI 40.1 40.1
4:30am GBP Services PMI 43.6 43.2
8:30am USD Non-Farm Employment Change -662K -651K
8:30am USD Unemployment Rate 8.5% 8.1%
8:30am USD Average Hourly Earnings m/m 0.2% 0.2%
10:00am USD ISM Non-Manufacturing PMI 41.9 41.6
11:00am USD FOMC Member Kohn Speaks
12:00pm USD Fed Chairman Bernanke Speaks
Sat
Apr 4 10:00am NZD Daylight Saving Time Shift
12:00pm AUD Daylight Saving Time Shift

Different currencies pay different interest rates. This is one of the main driving forces behind foreign exchange trends. It is inherently attractive to be a buyer of a currency that pays a high interest rate while being short a currency that has a low interest rate.
Although such interest rate differentials may not appear very large, they are of great significance in a highly leveraged position. For example, the interest rate differential between the US dollar and the Japanese yen has been approximately 5% for several years. In a position that can be supported by a 5% margin deposit, this results in a 100% profit on capital per annum when you buy the US dollar. Of course, an even more important factor normally is the relative value of the currencies, which changed 15% from low to high during 2005 – disregarding the interest rate differential. From a pure interest rate differential viewpoint, you have an advantage of 100% per annum in your favour by being long US dollar and an initial disadvantage of the same size by being short.Please refer to our page Forex Rates & Conditions for current Spreads, Margins and Conditions!
Such a situation clearly benefits the high interest rate currency and as result, the US dollar was in a strong bull market all through 2005. But it is by no means a certainty that the currency with the higher interest rate will be strongest. If the reason for the high interest rate is runaway inflation, this may undermine confidence in the currency even more than the benefits perceived from the high interest rate.

The Forex is essentially risk-bearing. By the evaluation of the grade of a possible risk accounted should be the following kinds of it: exchange rate risk, interest rate risk, and credit risk, country risk.

Exchange rate risk. Exchange rate risk is the effect of the continuous shift in the worldwide market supply and demand balance on an outstanding foreign exchange position. For the period it is outstanding, the position will be subject to all the price changes. The most popular measures to cut losses short and ride profitable positions that losses should be kept within manageable limits are the position limit and the loss limit. By the position limitation a maximum amount of a certain currency a trader is allowed to carry at any single time during the regular trading hours is to be established. The loss limit is a measure designed to avoid unsustainable losses made by traders by means of stop-loss levels setting.

Interest rate risk. Interest rate risk refers to the profit and loss generated by fluctuations in the forward spreads, along with forward amount mismatches and maturity gaps among transactions in the foreign exchange book. This risk is pertinent to currency swaps, forward outright, futures, and options (See below). To minimize interest rate risk, one sets limits on the total size of mismatches. A common approach is to separate the mismatches, based on their maturity dates, into up to six months and past six months. All the transactions are entered in computerized systems in order to calculate the positions for all the dates of the delivery, gains and losses. Continuous analysis of the interest rate environment is necessary to forecast any changes that may impact on the outstanding gaps.

Credit risk. Credit risk refers to the possibility that an outstanding currency position may not be repaid as agreed, due to a voluntary or involuntary action by a counter party. In these cases, trading occurs on regulated exchanges, such as the clearinghouse of Chicago. The following forms of credit risk are known:

1. Replacement risk occurs when counter parties of the failed bank find their books are subjected to the danger not to get refunds from the bank, where appropriate accounts became unbalanced.

2. Settlement risk occurs because of the time zones on different continents. Consequently, currencies may be traded at the different price at different times during the trading day. Australian and New Zealand dollars are credited first, then Japanese yen, followed by the European currencies and ending with the U.S. dollar. Therefore, payment may be made to a party that will declare insolvency (or be declared insolvent) immediately after, but prior to executing its own payments.

Therefore in assessing the credit risk, end users must consider not only the market value of their currency portfolios, but also the potential exposure of these portfolios. The potential exposure may be determined through probability analysis over the time to maturity of the outstanding position. The computerized systems currently available are very useful in implementing credit risk policies. Credit lines are easily monitored. In addition, the matching systems introduced in foreign exchange since April 1993 are used by traders for credit policy implementation as well. Traders input the total line of credit for a specific counter party. During the trading session, the line of credit is automatically adjusted. If the line is fully used, the system will prevent the trader from further dealing with that counter party. After maturity, the credit line reverts to its original level.

Dictatorship risk. Dictatorship (sovereign) risk refers to the government's interference in the Forex activity. Although theoretically present in all foreign exchange instruments, currency futures are, for all practical purposes, excepted from country risk, because the major currency futures markets are located in the USA. Hence, traders have to realize that kind of the risk and be in state to account possible administrative restrictions

The process of forex brokerage is fairly new and only big corporations or banks usually participated in this type of trading in the past, but now independent brokers are doing it and making money doing it. Online forex brokers are enticing their clients to trade through their Internet brokerage accounts and anyone who has the desire to trade foreign currencies can set up an account and do it.

Simply put, forex trading is buying low and selling high, but sometimes very quickly so there is the need for close monitoring. I recommend for the beginner that, when they purchase forex trading software, they utilize the demo software to begin and try different scenarios before going live.

The possibility of making money through forex trading is attractive if you think you can start with a 20:1 ratio and go as high as 300:1. The dollars available to make can be endless if you invest time and energy into forex trading.