Forex trading is the purchasing and selling of two foreign currencies at the anticipation that the exchange rate will increase. Banks, central governments, large corporations, individual traders and tourist agencies exchange foreign currency for various reasons, such as making a profit, facilitating global trade and tourism, or balancing the forex markets. This highly leveraged trading occurs each day in the same market where a lot of money is changing hands. The condition of the market allows traders to take advantage of price changes on a minute-to-minute basis.
Forex brokers provide assistance to Forex traders by matching their capital with an adequate amount of funds based on the capital size of their clients. Traders can be grouped into different categories depending on whether they are new traders or experienced ones. Brokers do not provide personal advice. They help identify the right opportunities and risks that a trader can encounter on the Forex markets and recommend how to manage risks.
There are basically two types of Forex trading platforms: the internet-based account and the local account. For example, one can open an account with a major worldwide bank such as HSBC or Citibank online. Alternatively, there are brokers who have developed a local presence on the internet. Some of these local Forex brokers provide mini accounts that suit the needs of first-time traders. Examples of these mini accounts include Forex mini lots and Forex mini accounts.
A trader can participate in both spot forex trading and forex option trading. They use the same currency pair in both cases, and trade one currency while keeping another at the same time. If a trader purchases a call option while holding a put option, then they are making money by speculating on the rise and fall of the spot price. This is similar to what happens when a person buys a call option while selling a put option.
Spot forex trading takes place when a trader purchases a single currency, then simultaneously sells it as well. A trader may also be in a buy position while selling a currency, but this is considered a partial position. When a trader is in a buy position, this means they are speculating the increase in value of the base currency that will compensate for the initial purchase. When in a sell position, the trader is speculating the decrease in value of the base currency.
On the Forex market there are two types of transactions that can be made. There are long positions which involve a person holding a particular currency for an extended period of time, and short positions. The trader will make profits from the difference between the opening and closing prices. The profit made from a short sale or a stop-loss order is usually less than the opening and closing price. The difference in price is called the spread.
Forex trading occurs between two specific pairs of currencies. The two most widely traded pairs are the U.S. dollar against the British pound and the Euro against the Japanese yen. These two pairs account for eighty-five percent of all traded volume on the Forex market. The pairs can be traded day or night and are usually traded over the counter (OTC). Trading on the Over the Counter Market is much more flexible than trading on the physical exchange floor because it is not necessary to physically maintain records of trades, which would become susceptible to fraud.
Another type of Forex trading account is called mini Forex account. This type of account is meant to hold small amounts of money, usually under ten thousand pounds, and allows small individual investors quick access to the Forex market. Mini Forex accounts are popular with people who do not wish to risk large amounts of money on Forex trading. Many small to medium sized investors use mini Forex accounts. Some of these investors own only one or two Forex trading accounts.