Forex, also known as foreign exchange, FX or currency trading, is a decentralized global market where all the world's currencies trade. The forex market is the largest, most liquid market in the world with an average daily trading volume exceeding $5 trillion. All the world's combined stock markets don't even come close to this. But what does that mean to you? Take a closer look at forex trading and you may find some exciting trading opportunities unavailable with other investments.
Open 24 hours a day 5 days a week, the foreign exchange market is the largest and most liquid market in the world with volumes of over $4 trillion a day surpassing any exchange based market.
Foreign exchange trading involves trading one currency pair against another, predicting that one currency will rise or fall against another. Currencies are traded in pairs, like the Euro versus the US Dollar (EUR/USD).
Forex trading is similar to trading shares or futures except that when trading foreign exchange you are buying or selling one currency against another and you do not take delivery of the underlying currency. One of the key advantages Forex has over other financial instruments is that relatively small lot sizes can be traded - lot sizes can be as small as 1000 units (one micro lot). Typically, foreign exchange also involves leverage which in some cases can be as high as 1:500, which is very different to trading shares where no leverage is involved.
Leverage allows traders to trade with more money than they actually have in their trading account. For example, if you had 1:100 leverage you could use a $1,000 deposit to control $100,000 worth of currency. Using leverage can result in an increase in gains, however, if not used correctly it can also result in increased losses.