FX or forex for short, is the buying and selling of currencies. The forex market is traded 24 hours a day, 5 days a week with extraordinarily large liquidity traded daily at over 4 trillion dollars exchanging hands every day. Forex offers high leverage, liquidity, and is the largest OTC exchange-free trading market. Forex is exciting and offers traders excellent daily opportunities. There are some terminology and basics to learn about forex itself first.
Forex 101
Currencies are quotes as pairs. AUD/USD is the amount of American dollars required to buy Australian dollars. The first listed currency, AUD, is referred to as the base currency. Suppose AUD/USD is quoted as 0.9500. This means 95 American cents are needed to purchase 1 Australian dollar.
Currency movements are measured in pips. A pip is 4 decimal places to the right (the exception is USD/JPY, where 1 pip is two decimal places, or 0.01). For example, if a currency moves from 0.9500 to 0.9501, it has increased by 1 pip. Currency movements are small. Therefore, the forex industry offers traders very high leverage (limited by local regulations) to realize higher gains. At the same time, higher leverage may also mean higher losses.
FX traders would typically look at the currencies available and buy the strongest one while selling the weakest. So, for example, if after reading the news, you thought the euro was strong and the US dollar was weak, you could buy the euro while selling the dollar.
FX trading is for many traders their first step whilst using leverage. You can open a position with a small deposit and start speculating on the global markets.
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By trading with securities and derivatives on margin you are taking a high degree of risk. You can lose all of your deposited money. You should start trading only if you are aware of this risk that is involved.
CFDs & FX are complex instruments and come with a high risk of losing money rapidly due to leverage.
