What is Forex Trading?

Forex is short for foreign exchange. This refers to the exchange of one currency for another without which international trade could not happen. The answer to the question, what is Forex, depends upon the person’s perspective. What is Forex to a company like Boeing or Cargill with billions in international sales? It is a means of receiving payment or converting payment to the company’s national currency. It is also a means of hedging risk by buying options on Forex contracts. What is Forex to the speculator? It is means of making a profit from the natural fluctuations in relative values of foreign currencies. In the Forex market currencies are traded in pairs. No matter what is happening to the Yen, dollar, or Swiss franc traders can buy pounds with Euros or vice versa and only attend to technical analysis of the price pattern of that relationship. Likewise with analysis of national economies, monetary policies, and politics, these fundamentals are solely related to the pair being traded. What is the Forex market? It is a place for trading foreign currencies and has a somewhat different purpose for each different type of trader.

What is Forex for the options trader or company wishing to hedge currency risk? In trading options on Forex the trader buys call on one currency with another. Because both sides of the trade are currencies buying a call on Euros with dollars is the same as buying puts on dollars with Euros. In buying puts and calls in Forex options trading, the trader pays for the right to exercise a trade on or before the contract expiration date. He is, however, under no obligation to do so. The seller of a Forex option receives payment for undertaking the obligation to buy or sell one currency with another, which will always be at a loss. The buyer will never exercise the trade unless he profits. Thus trading Forex through buying options protects the buyer against downside risk. Pays the premium, much like buying insurance, and never sees a greater loss. If the currency he wants to buy or sell moves as expected he can profit substantially. Trading options in Forex can be how to trade Forex successfully.

What is Forex for the day trader? It is a high volume, extremely liquid market, so long as the trader sticks to trading major currency pairs such as the US dollar, Aussie dollar, Canadian dollar, British pound, Swiss franc, Euro, and Yen. By learning how to trade Forex online, the trader can make repeated trades on small moves in currency values. In trading Forex it is important to know where to get important Forex news as all factors that drive currency values are generally available, from monetary policy to trade figures. The successful Forex trader will follow the fundamentals of currencies as well as the technical factors that tend to predict the very next price fluctuation or an emerging price
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