When you are thinking of investing, the term Forex might come up. If you are new to the world of investing, or even if you are not, Forex may be a completely foreign concept to you. So, before you decide how you want to invest your money, it is important to learn the basics of what Forex is and how exactly it works.
What is it?
Forex, to begin with, is an acronym for “Foreign Exchange”. Basically, this is a concept in which you are trading different currencies against each other. An example of this would be the euro, which is European currency traded with the U.S. Dollar. So, you might buy the euro while you are selling the Dollar.
Can I do it by myself?
Forex is not usually done alone. In other words, someone who wants to become in involved in forex trading would want to look for a broker or a market maker who is familiar with this type of investment. The broker or market maker can help to advise you on wise investments. Then, once you have decided on the best currency to trade out for he or she will be the one to click the buttons and make it happen.
It may seem that forex wouldn’t make money.
After all, how can you make money selling one currency and buying another? The increase of money in your pocket comes from an increase of value of the currency you traded for. For example, in the euro increased in value in comparison to the U.S. Dollar.
So, if in January you bought 1,000 euro’s you would have paid about $1,200 in U.S. Dollars. Then, if you sold the 1,000 euro’s back for U.S. Dollars you would be getting $1,300. Thus, you would have made profit of $100 in this forex scenario.
When does Forex happen?
One of the best things about Forex is that it is happening just about all the time. There are three major sessions, when looking at active hours, to be cognizant of in the forex market. There is the London Session, the U.S. Session and the Asian Session. The London session starts at about 8:00 GMT and ends at about 1600 GMT. The most active currencies being traded during the London session include the EUR, GBP, and USD. The U.S. Session begins at about 1300 GMT and ends at about 2200 GMT. The most active currencies during this time are the AUD, EUR, GBP, JPY, and USD. Lastly, the Asian session, which is pretty quiet most of the time? Right now, the pairs in this market are not moving very quickly.
The JPY would be the only real activity going on in the Asian session, and it is slow as well. So, when looking at the very best hours for forex trading, you would be safest to trade during the overlap hours between the London session and the U.S. Session. This time frame would ensure that you are trading with a lot of active participants and that the currencies are moving at a reasonable rate.
In summary, Forex is a type of investment which is done among the various currencies around the world. As the value increases among one currency you can gain or lose money, depending on how wise your investment is. Thus, you don’t want to go into forex investing blindly. Know about the currencies you are considering and ask questions of those who are knowledgeable in this field before selling your money and buying into another currency.