What is forex?

The foreign exchange market ( also known as Forex, FX or currencies market) exists wherever one currency is traded for another. It is the largest and most liquid market in the world. Trading of currencies takes place between large banks, central banks, currency speculators, multinational corporations, governments, other financial markets and institutions. The average daily trade in the global forex markets exceeds US$ 2 trillion, and is growing.
Buying/Selling
In the Forex market, currencies are always priced in pairs and trades result in
simultaneous buying of one currency and selling of another. This is commonly referred to as the cross. The objective of currency trading is to buy the currency that increases in value relative to the one you sold. Once the price appreciates, you simply sell it at a higher price to lock in profit. You can also sell a currency that you believe will depreciate in value and then by it back at a lower price to lock in profits. The selling (buying) of a position after buying (selling) to lock in gains or losses is referred to as 'closing' the trade.
How Prices are Quoted & PIPS
Currencies are quoted in pair. The first listed currency is known as the base currency and the second is called the counter or quote currency. Currencies are quoted using five significant numbers, with the last placeholder number called a pip. For example, a EUR/USD quote 1.3045/1.3048. The first number is the bid price and the second is the ask price. The different between these bid/ask prices is referred to as the called “spread" or the cost which traders must pay to establish a position.
Trading Scenario – Trading Rising Prices
If you believe that the euro will strengthen against the dollar you'll want to buy euro nowand sell it back later at a higher price.
• You buy euro We quoteEURUSD at Bid 0.9875 and Ask 0.9878, which
means that you can sell 1 euro for


0.9875 USD or buy 1 euro for 0.9878 USD.
In this example you buy euro 100,000, at the quote price of 0.9878 (ask price) per euro.
• The market moves in your favor. Later the market turns in favour of the euro and the EURUSD is now quoted at Bid 0.9894 and Ask 0.9896.
• Now you sell your euro and get the profit. You sell euro at a Bid price of 0.9894.
• The profit is calculated as follows: Sell price-buy price x size of trade (0.9894 minus 0.9878) multiplied by 100.000 = USD 140 Profit !
Analysis Techniques
Fundamental
Of the basic approaches to analyzing the currency markets Fundamental Analysis is based on looking at the bigger picture (or macro) of what causes market change. Underlying causes of price movements that a fundamental analyst would look at include political, economic, social and even environmental factors that could effect a currencies behavior. Fundamental analysis does not focus on the inherent price behavior of a specific currency, whereas technical analysis does. Indicators such as interest rates, inflation, unemployment, the housing market and political unrest are some of the key issues fundamental analysis focuses on. This type of analysis requires in-depth knowledge of the cause/effect relationship to a currencies behavior and therefore can be
very complex.
Technical Analysis
Most of today's traders prefer Technical Analysis because it is a more direct analysis of price behavior. This is the study of past financial market data, primarily through the use of charts, to forecast price trends and make investment decisions. It is the ability to forecast the future direction of security prices through the study of past price and volume data. The premise here is that price reflects all relevant factors before an investor becomes aware of them through other channels. The concept of technical analysis is that markets have tendency to trend and technicians attempt to identify price trends early in a market
and ride them for maximum profits (trend analysis). The great thing about technical analysis is there are plenty of FREE online tutorials on the Web that teach the various chart reading and technical analysis strategies.
How do you to trade in the Forex market?
To start trading you first need to set up an online brokerage account. The good thing is that you can do this for as little as a couple hundred dollars. Therefore, you will need seed money, a reliable computer with internet access and anti-virus protection. One of the critical tools you need to trading in the Forex market is good chart software. It is best that this software has a good tutorial system that teaches the user how it works. There are many different types of charts with sets of technical indicators, and they come in a multiples of different time frames 1,5,10,15,30, 60 minutes, 4 hours, Daily, Weekly, and Monthly timeframes. Depending on what strategy you are using will depend on the chart setup you will be using. The electronic deal station or trading terminal is used to access the currency pairs for placing your trade orders.