Forex - What is it?

Forex is a hybrid word that represents Foreign Exchange. It's most commonly used to describe foreign exchange trading.

Forex is changing one currency for another. In forex trading, the pairs are preset pairs that are paired up by brokers that allow account holders to make exchanges. The object of making the exchange is to hold the exchange until the value increase and then exchange the currency back. This will sound more complicated in explanation than it actually is in process.Forex brokers offer currency pairs, such as EUR/USD, which is European Dollar vs. the US Dollar. If you were to "go long" on this pair, you would be buying Euros specifically against the US Dollar. If the Euro increased in value against the US Dollar, you make a profit. You have to close or end your trade in order to lock in your profit.

By "going short" on the same pair, you could trade it in reverse. That is, you would make money if the Euro decreased in value against the US Dollar. This one of the things about forex that is great, you can trade in either direction with no real restrictions. The only thing is that you can only trade one way on acurrency pair at a time, per account. However, there is no rule saying you can have only one account, so really, you can trade the way that you want.

This sounds pretty simple and straight forward, however, there are some things that make this a bit more of an adventure than it sounds.

Forex brokers offer leverage to forex traders so they can make trades that are larger than their balance. Leverage can range from 200:1 to 50:1 on average. In the U.S., brokers are limited to offering 50:1. What this means, is that for every $1 you deposit into your account, you can trade $50 on the foreign exchange market. In forex, you typically trade with minimum lot sizes depending on your forex account type.

This is all forex is in a nutshell. You can open an account with a forex broker, fund it, and trade. It's that simple. At least, mechanically, it's that simple, there's more to know. One thing that trading with leverage introduces is fear and greed. What I mean by this is leverage enables you to trade for large gains in comparison with your actual balance. It's possible to make some fast money putting big trades on the market. Sometimes, it even seems like you can't lose. This works fine while you're winning, this is the greed side.

The other side of this coin is the fear side. Often, traders without a plan are the ones that feel the fear. You know that this is happening to you if you feel very anxious while putting on a trade, and you tend to close your trades after they've earned only a tiny bit. This tends to happen after a large loss, or even starting over.

This emotional side to trading forex is what causes so many people to lose their money and quit trading. To avoid becoming part of that statistic, you need to practice, plan, keep a forex journal, and don't get carried away. It seems more simple than it actually is. Many traders will blame their failures on broker games, stop hunting, and other conspiracy theories. The truth is that your trading success falls on your shoulders. If you find a decent broker, and trade with care, you will survive, and if you are really careful, you might actually make some money. Just avoid approaching it like a game and take it seriously. It seems very easy to make money making clicks on a screen, but it still takes planning and some strategy.

Did you find this article helpful or do you have any comments. You can email me at forextrading@aboutguide.com or follow me on facebook or twitter