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Introduction
Traders buy and sell currencies with the
hope of making a profit when the value of
the currencies changes in their favor,
whether from market news or events that take
place in the world. The forex market is the
largest market in the world with daily
reported volume of over 1.8 trillion making
it one of the most exciting markets for
trading.
Market Hours
The spot FX market is unique to any other
market in the world, as trading is available
24-hours a day. Somewhere around the world,
a financial center is open for business, and
banks and other institutions exchange
currencies, every hour of the day and night
with generally only minor gaps on the
weekend. Essentially foreign exchange
markets follow the sun around the world,
giving traders the flexibility of
determining their trading day.
How an FX Trade Works
In this market you may buy or sell
currencies. The objective is to earn a
profit from your position. Placing a trade
in the foreign exchange market is simple:
the mechanics of a trade are virtually
identical to those found in other markets,
so the transition for many traders is often
seamless.
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Example of How an FX Trade Works |
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Trader's
Action |
Euros |
US
Dollar |
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A trader
purchases 10,000 euros in the
beginning of 2001 when the EUR/USD
rate was .9600. |
+10,000 |
-9,600 |
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In May
of 2003 the trader exchanges his
10,000 euro back into US
dollar at the market rate of 1.1800. |
-10,000
|
+11,800 |
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In this
example, the trader earned a gross
profit of $2,200. |
0
|
+2,200 |
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