What is Forex?

You may have heard of Forex but don't know exactly what it is. Forex is short for foreign exchange - Forex trading therefore is investing in, or speculating on, the exchange rate or the price of national currencies. Just as an investor might trade shares, commodities, and government or corporate bonds, an investor can make informed guesses about the price fluctuations of foreign currencies.

The global Forex markets consist of the currency of every country, and are traded 24 hours a day, 5 days a week. Forex traders can operate from anywhere, even from home. The busiest time for Forex trading is when the USA session is just opening and the European session is closing, which is between 13:00 and 17:00 GMT. Currency prices move up and down very quickly during this time, which creates both opportunities and risks.

The fundamentals of Forex are not complicated: You buy a currency when it's low, sell when it's high, and take a profit. You can also make a profit by selling high and then buying low. This is called short selling. It takes time and practice to learn how to predict fluctuations in currency values and become successful in Forex trading. Many indicators can affect the price of a particular currency in relation to its value against other currencies - from national economic outlook to political change. A succesful Forex trader learns how to read these indicators. Traders have tons of educational material available on the web to develop their knowledge - check out the rest of the Admiral Markets' education section.

Forex is usually regarded as high risk for private investors but in the current economic climate it is becoming a more attractive option. Forex is not for the faint of heart but a skilled investor with the right tools and the right knowledge can be successful.

Forex has built-in advantages over other types of investment. In the Forex market, an investor can gear up or “leverage” in a way that is not possible in most other asset classes.

Think about buying a house. Generally, you may put down between 10 to 20 per cent of the overall price of the house. The rest of the money you borrow from the bank. Suppose you buy a house worth $100,000. You put down $20,000 and borrow the rest from the bank. Then suppose the price of that house goes up to $120,000 in six months, which is very possible in a rising market. You can then sell the house and double your money.

Forex works in the same way - and even more so: With foreign exchange you can control sums of money up to 500 times larger than your initial investment.

Forex has additional advantages over other types of financial instruments. Investors can enter the market with much smaller amounts of money, can sell out easily, and can short sell.

In the European Union, Forex is closely monitored and tightly regulated. The retail Forex market has grown rapidly in the past few years and it is the fastest growing financial area. One of the reasons for this fast growth ist the software that has revolutionized the industry in the past few years. Nowadays it is easier to execute trades - everyone who has access to the internet can buy and sell currencies within seconds at any time, in any place.

Knowledge Base


10 Golden Rules of Forex Trading

The truth about Forex is that it can be an intense and stressful undertaking that requires a strong control of your emotions. Forex is not a "get rich quickly" scheme. Learning to trade Forex takes patience – it will take you time before you master the basics.