Understand Foreign Currency Trading in Detail

Forex trading or foreign currency trading refers to a transaction in the Forex market involving the purchase and sale of different currencies. You don’t need to be a specialist or possess degrees to trade in foreign currency. It is fairly simple to understand and learn foreign currency trading.Let us start by understanding who the players are in this trading. Foreign currency trading is done between and among major financial institutions, central banks, retail currency traders or speculators, large international companies, government institutions, companies with overseas operations and the like.Trading in stock market is regulated by central exchanges. In foreign currency trade transaction is carried out at the Inter bank Market, which is also regarded as an OTC Market. The trade transaction is directly done between two counterparts over global electronic network. The main Trading centers of the world are Sydney, Tokyo, London, Frankfurt and New York operating 24 hours a day. Foreign currency trading begins each day in Sydney, and moves around the globe by moving to Tokyo, London, and New York. This offers flexibility to investors to take advantage of currency movements that are often caused by political, economic or social causes any time of the day.Anyone who intends to learn foreign currency trading with the goal of making profits in the market must understand the importance of tracking and analyzing price movement of foreign currencies. Various currencies of the world are given a three-letter code to be used in forex trading. Foreign currency trading always involves currency pairs, which basically is the exchange rate of one currency over another. The commonly traded currency pairs are GBP/USD, EUR/USD, USD/JPY, USD/CHF, AUD/USDHow does one actually book profits in forex trading?The thumb rule remains the same as any other product – buy low and sell high. To give an example a trader may decide to buy EUR and sell USD. Simultaneously he may buy USD and sell AUD. This buying and selling in Forex terminology is referred to as the trader going long or short respectively. In each currency pair the first currency is the base currency and the second one is referred to as the counter or quote currency.Another set of unique terminologies that you will come across frequently when you learn foreign currency trading is Bid and Ask price or spread. Bid price is the price at which a broker is willing to buy and ask price is the price at which the broker is willing to sell. Therefore Bid price is the price at which a trader should sell and ask the price at which a trader should buy.Forex trading is fairly simple to learn and you don’t need to be a genius to make profits in the Forex market. You have the choice of selecting the pair of currencies that you wish to trade in the, the size of the transaction and the price at which you wish to trade. Irrespective of the currency rate movements you can decide to buy or sell. And then again physical possession of the currency is not required to perform the transaction – you perform your trade transaction to buy one and sell other one to one.Before you actually commence trading it is however very crucial that you learn and understand the concepts of foreign currency trading clearly. You can make use of a number of online services available to assist you. Understanding Forex trading systems, the market psychology and managing risk will go a long way in determining your success in this market.