The Foreign Exchange Market

If you’re interested in trading currency in the market you should definitely take time learning about the foreign exchange market. It is one of the oldest and largest markets in the world. It is a venue for investors to exchange from one foreign currency to another. Many use it in a similar way as the Stock Exchange, watching the exchange rates fluctuate to decide the best time to trade.

How does the foreign exchange market work? investors sign up with brokerage companies (usually over the Internet) and the brokerage companies then buy and sell different currencies on behalf of the investor. Once you set up an account with a reputable company, you place money in your account then use it to trade with any foreign currency deemed profitable. Any money sold or made filters through this account and can be withdrawn when ready.

Knowing what kinds words like currency pairs that are used on the foreign exchange market is a start to investing in currency. Currency pairs, are international three-letter codes of currency representing an individual product that look like this in generic form: XXX/YYY. The first set of letters in the pair represents a currency that works as a commodity, while the second pair works as money. So for instance, if you are using one of the four major currency pairs, GBP/USD (British Pound and US Dollar) then you would either buy or sell British Pound against US Dollars, no matter what currency you have in your account.

FYI: The other major currency pairs are: Euro and USD (EUR/USD), USD and Japanese Yen (USD/JPY), and USD and Swiss Frank (USD/CHF).

Investors make money buying and selling foreign currency by closely monitoring the exchange rates, then buying low and selling high. For example, if you decide to buy GBP against USD when each GBP is equal to 1.8543USD, then sell it when each GBP goes up to 2.1453USD, you have made a profit.

Unfortunately, there are no known insider tips for those trading in the market, so most take advantage of technical analysis (predicting the direction of the price by using a price chart) and fundamental analysis (predicting the price according to economics and politics), which can take some time to learn. But because trading is done 24-hours a day, people have more time to learn and more time to make money.

If you take the time to understand exchange rates and all of the technical procedures involved, the foreign exchange market can make you very good money. However, don’t use this introduction as a starting point. Make time to learn as much as you can to avoid the risk of losing your money.