The currency exchange rate is the rate at which one currency can be exchanged for another. It is always quoted in pairs like the EUR/USD (the Euro and the US Dollar). Exchange rates fluctuate based on economic factors like inflation, industrial production and geopolitical events. These factors will influence whether you buy or sell a currency pair.

Example of a Forex Trade:
The EUR/USD rate represents the number of US Dollars one Euro can purchase. If you believe that the Euro will increase in value against the US Dollar, you will buy Euros with US Dollars. If the exchange rate rises, you will sell the Euros back, making a profit. Please keep in mind that forex trading involves a high risk of loss.

Forex is the world's largest market. With about 3.2 trillion US dollars in daily volume and 24-hour market action, we believe it is a true "step above" the equities market for the serious trader. Some key differences are:

• Many firms don't charge commissions – you pay only the bid/ask spreads.
• There's 24 hour trading – you dictate when to trade and how to trade.
• You can trade on leverage, but this can magnify potential gains and losses.
• You can focus on picking from a few currencies rather then from 5000 stocks.
• Forex is accessible – you don’t need a lot of money to get started.

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for everyone. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. Remember, you could sustain a loss of some or all of your initial investment, which means that you should not invest money that you cannot afford to lose. If you have any doubts, it is advisable to seek advice from an independent financial advisor.

The Forex market is the largest financial market on Earth. Its average daily trading volume is more than $3.2 trillion. Compare that with the New York Stock Exchange, which only has an average daily trading volume of $55 billion. In fact, if you were to put ALL of the world's equity and futures markets together, their combined trading volume would only equal a QUARTER of the Forex market. Why is size important? Because there are so many buyers and sellers that transaction prices are kept low. If you're wondering how trading the Forex market is different then trading stocks, here are a few major benefits.

• Many firms don't charge commissions – you pay only the bid/ask spreads.
• There's 24 hour trading – you dictate when to trade and how to trade.
• You can trade on leverage, but this can magnify potential gains AND losses.
• You can focus on picking from a few currencies rather then from 5000 stocks.
• Forex is accessible – you don't need a lot of money to get started.

The mechanics of a trade are virtually identical to those in other markets. The only difference is that you're buying one currency and selling another at the same time. That's why currencies are quoted in pairs, like EUR/USD or USD/JPY. The exchange rate represents the purchase price between the two currencies.

Example: the EUR/USD rate represents the number of USD one EUR can buy.
If you think the Euro will increase in value against the US Dollar, you buy Euros with US Dollars. If the exchange rate rises, you sell the Euros back, and you cash in your profit. Please keep in mind that forex trading involves a high risk of loss.

If you're interested in Forex trading, we recommend FXCM. They have over 500 professionals on hand to help you out 24-7. They offer a lot of FREE information to get you started, access to services with an array of technical and fundamental analysis tools, and for less then twenty dollars, you can learn trading skills from professional instructors through the FX Power Course. Plus, if you just want to mess around and simply test your trading skills without a serious commitment, you can open a Free Demo Account with absolutely no risk

To develop a strategy, traders use a variety of tools and techniques. Some traders perform Technical Analysis by using Currency Charts to study the market. This technique assumes that past market movements will help predict future activity. The effectiveness of Technical Analysis makes it a very popular trading technique.

Other traders use Fundamental Analysis for their trading strategy. They follow the effect of economic, social and political events on currency prices. Reading specialized Forex News can help keep you in touch with the Forex community to find out how events might affect currency prices.

Every trader makes mistakes, so it's a good idea to familiarize yourself with a trading environment before you invest your money. To improve your trading skills, try opening a free demo trading account with a Forex company. FXCM, for example, has professional traders on-hand 24 hours a day to answer any of your questions – even during your free trial, so make the most of it! They even have an online FX Powercourse that costs less then 20 dollars; but don't let the price fool you. You get live 24 hour access to professional traders that can teach you advanced skills that can make you a better trader.

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for everyone. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. Remember, you could sustain a loss of some or all of your initial investment, which means that you should not invest money that you cannot afford to lose. If you have any doubts, it is advisable to seek advice from an independent financial advisor.

We think that the best way to learn about Forex is to mingle with Forex traders and, most importantly, ask a lot of questions. You're probably wondering where you can find these people. That's where the FX Power Course comes into play.

The FX Power Course is a popular online course that gives you access to instructors with years of market experience for less then 20 dollars. You get interactive instruction and feedback 24 hours a day for 8 days, and it gives you the opportunity to win up to $1000 in the Alumni Trading Contest.

This is an FXCM course and it is incredibly useful as is, but it also includes some extra perks if you open a Forex account through them. You can get your entire tuition credited to your trading account, plus you get access to an experienced instructor for 1 full year. Here's what you learn:

• Learn to identify clues about future market activity by reading charts.
• Find out when to place trades and when to take profits or losses.
• Know how to find trends and gauge their potential for profit.
• Understand the importance of political and economic events.

This FX Power Course is online, so you can study at your own time. Once your course begins, you go online to view the lessons, which take about 45 minutes each. Throughout the 8 days, the team of instructors is available 24 hours a day to help you learn; you can ask the instructors questions or discuss ideas with fellow students any time. By practicing alongside a professional, you will gain valuable insight on how to improve your trading and once you finish the course, the Alumni Forum membership let's you participate in the Forex community so you can stay in the know.

Right now, FXCM is offering the FX Power Course at an introductory price of US $19.99. Considering you get access to trading professionals AND the opportunity to win a thousand dollars through the Alumni Trading Contest, it's a great deal. You can purchase the course online, or if you have any questions, you can go to the FXCM site.

Trading foreign exchange on margin carries a high level of risk, and isn't suitable for everyone. Unique experiences and past performances in this course don't guarantee future results. So, if you don't take the time to read the lessons, ask questions and practice trading, you won't receive the full benefit of taking this course.

There are many Forex Brokers, but not all were created equal. When it comes to your money, you want to be certain that your Broker meets your expectations. It is your right to ask as many questions as you need to feel comfortable about your venture and if you don’t get the answers your want, you should consider finding another Broker.

Size matters. Because the Forex market is an over-the-counter market with no centralized exchange, not everyone receives access to the same prices or quality of execution. Institutions with the largest trade volume and the most solid financials have access to better prices and execution. The bigger the broker, the better they are able to pass on the benefits of size, better prices, and better execution to you.

Not all Forex Brokers quote rates the same way. Below are two possible options:

1. Dealing Desk means that your Forex Broker creates the pricing and executes your orders. The spread is usually fixed, which means that traditionally, the spreads are higher than average variable spreads. Check for restrictions on placing orders during news or economic events; for many traders, this is a key time to trade.
2. No Dealing Desk usually means that multiple banks stream competing prices through your Forex Broker, so your orders are executed by the banks themselves. This means that there are usually no restrictions on trading news or economic events, but you should check with your broker.

  Most major currency pairs are quoted to four decimal places, so a pip would typically equal .0001 or one basis point. Forex Brokers generally round the price up or down to the nearest pip; but some now offer Fractional Pip-Pricing. It ads an additional decimal place, so spreads are usually tighter and more accurate.

 

Many traders favor short-term scalping strategies, which involves placing orders inside the spread. For scalping to be profitable for the client, the market maker must lose, so some Forex Brokers disallow the strategy. This strategy involves a high level of risk.

 

Rollover is interest earned or paid on Forex positions held overnight. It varies depending on the difference in interest rates between a currency pair and fluctuates day to day with the movement of prices. A Negative Roll is when you sell a currency that pays higher interest rate, so you pay interest. A Positive Roll is when you buy a currency that pays higher interest rate, so you can earn interest. Negative Rolls are routine, but not all Forex Brokers offer positive rolls.

The "Carry Trade" is a popular Forex strategy which benefits from Positive Rolls and the high leverage available in the Forex market. For example, if you buy the USD/JPY, you can earn a positive roll. You are essentially borrowing the Japanese yen at a low interest rate cost to buy the US dollar with a high interest rate earning. Remember that leverage can dramatically amplify your losses, so beware of this technique, as it carries a high level of risk.

Hedging lets you simultaneously hold BUY and SELL positions in the same currency pair. The most effective way to trade a market if you are uncertain about its direction is to find concrete support and resistance levels. This allows you to pinpoint levels where significant price action will take place.

Hedged positions do not necessarily limit risk as traders can find themselves losing on both sides of the trade. While this strategy tends to work temporarily in range markets, it does not work well in trending markets. Placing stop-loss orders on your positions to mitigate your risk is strongly recommended.

In the Forex market, you can trade on a highly leveraged basis, giving you the ability to control positions much larger than your deposit. This is very useful to short-term traders who need the magnified capital to generate quick returns. Without proper risk management, though, a high degree of leverage can lead to large losses as well as gains. Some Forex Brokers protect your account from falling below your account equity, which is valuable in volatile markets.

Forex trading works 24 hours a day. Does your Forex Broker? When you ask them questions, do they answer them clearly and honestly or do they give you the run-around? If your Forex Broker can’t answer the 15 questions below, you may want to look for one who can.

These questions are based on the above information and relate to basic information that your Forex Broker should answer without hesitation. Or contact FXCM and put them to the test; their friendly staff is always happy to answer these and any other questions you may have.

• How long have you been a Forex Broker?

• In what financial condition is your company? Will you show me your balance sheet?

• Do you have good relationships with reputable banks?

• Who is quoting the rates, my broker, a bank, or multiple banks?

• Are the spreads fixed of variable?

• How tight are the spreads?

• Do you offer Fractional Pip Pricing?

• Are there any trading restrictions?

• Can I place orders inside the Spread?

• Can I earn interest on positive rolls?

• Can I earn positive rolls at all margin levels?

• Are rollover rates displayed prominently? Where?

• Does the trading platform allow me to hedge?

• Can I lose more money then I put into my account?

• What is the quality and availability of customer service?

Be aware that trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.