What is FX trading?

Currency trading (or FX trading) is the act of exchanging one currency for another in an attempt to create a profit when exchanging it back at a later time. The FX trading market is the largest trading market in the world, trading 1.9 trillion dollars daily. This gives the investor a very high liquidity, and in turn, quick execution. This, and fact that the FX market trades 24 hour a day, makes FX trading attractive to the potential investor. Since the first brokers used the internet for instant execution, smaller investors with a smaller capital (as little as 250 USD) are able to participate in FX trading, which before was reserved for larger institutions such as banks.

The participating public has grown since the birth of online FX trading, and shows no end in sight for an emerging and lucrative investment opportunity. The currency market is a very unique market; it offers many conveniences in a high leverage environment. The trading volume of the FX trading market exceeds any other market in the world, as does its total daily money traded (1.9 trillion). Because the market has the highest trading volume, trades can be executed in a quick OTC manner. This, and the Internet, give birth to online FX trading which allows traders to quickly buy or sell currency on a small amount of money at a high leverage (1:100 usually) in an attempt to make a profit when trading it back at a later time. Leverage can be a bad thing too; FX trading is considered to be very risky by many because of the tremendous losses that can occur. High leverage in FX trading makes it a double edged sword, because as the winnings are amplified, so are the losses. Steady, consistent wins are generally accepted as the best method in succeeding in FX trading, as even the smallest string of losses can lead to bankrupting an account. Many things effect FX trading, but almost always boils down to simple supply and demand. In each of the currencies nations, small fluctuations of supply and demand as well as economic news and releases effect the price of each currency, making it a volatile and ever changing market. The economic factors that effect FX trading can be anything from a news release to a large price action caused by a major buy or sell of a specific currency (Bank of Japan intervenes the yen regularly). Also, other economic events such as inflation or trends make an impact on FX trading.

A currency may lose value due to rising inflation rates; purchasing power would plummet, causing the specific currency to be worth less. FX trading is very fickle in this respect, so great care should be taken in researching each trade before execution. Since FX trading became available to the general investing public, many techniques and indicators have been used in order to be able to trade currency efficiently. One of the more popular methods of FX trading is using a programmed trading system (or algorithm). This algorithm is coded into a trading platform, and trades are automatically taken according to specific written rules. Many investing firms with their hands in the FX trading market use these robots to trade on a historically proven system. This will give their clients a set rate of return, with a proven track record.