Forex Trading 101

Trading forex is an alternative way to make money – if you know what you’re doing.

- Trevor Crighton

You often hear the expression “trading forex” when people who invest talk about money- making ideas. But, what does this really mean? For many people, foreign exchange (forex) relates to buying foreign currency when you travel to another country. But, trading forex is a whole different world. Forex is traded on the international foreign exchange market, but there is no central marketplace. Instead, currency is traded electronically over the counter, with transactions occurring via computer networks between traders around the world. The market is open 24 hours, five and a half days a week, to account for activity in different time zones. This currency is traded because people and companies need to conduct business with others in different countries without a common currency.

“A forex transaction is when you exchange one currency for another at the exchange rate for the day. Forex trading is when you do so, trying to make a speculative profit by predicting the direction of the price change,” says George van der Riet, head trader and director at the Global Forex Institute. So effectively forex traders are guessing whether the exchange rate on specific currencies is going to climb or fall. They then attempt to profit by buying it at the right time, and price.

MAGIC MONEY

Since actual currency never changes hands, where then does your cash actually sit? George says that this depends on the broker you use to trade. “Some brokers have separate bank accounts in European countries, mostly Swiss banks. Some keep deposits locally – an important factor when choosing a broker,” he says.