Forex trading, also known as Foreign Exchange Trading, is the trading of currencies. The Forex market is the largest financial market in the world with an average daily volume of $1 trillion. Forex trading is a true 24 hour trading market that operates through a world wide electronic network. Those involved with forex trading include businesses with overseas operations and speculators trying to make a profit.

Basics to Forex Trading

Forex trading is the simultaneous buying and selling of two different currencies. For example you buy a US Dollar and sell a Euro at the same time. Currencies are always bunched in pairs such as the US dollar/Euro, and Swiss Franc/Yen. The Forex market is highly liquid and competitive allowing for tight "bid and ask" spreads. Tight spreads allow for an investor or trader to receive a better price than trading in an investment that is not highly liquid.

There is no exchange floor for currency trading like with stocks, bonds or options. Instead, Forex trading is a world wide electronic network where trades occur over the phone or though computer networks. No matter what time of day it is you can always make a trade on the Forex market. Each trading day officially begins in Sydney and rotates around the world hitting Tokyo, London and New York--operating 24 hours a day.

There are currencies that are most commonly traded and these are called the "majors." The US dollar, Canadian dollar, Euro, Yen, Swiss Franc and Australian dollar are considered the "majors." Businesses engage in forex trading if they need to buy or sell goods overseas in foreign markets. This type of trading accounts for a small percentage of the daily activity in the forex market. The majority of trading activity is done by speculators who intend to profit from changes in value of a specific currency.