The largest and most liquid market in the world trades in the trillions! It offers trading 24 hours a day, 5 days a week. This leading market is Forex.

Since all the leading currencies are traded in the market, there is bound to be a lot of swings and the rates may be fluctuating wildly. This offers a great opportunity for an experienced and shrewd trader.

A good businessman will know that he can make a profit in both a rising and falling market, just like the equity market. Unlike the equity market which demands a large amount of margin money to trade, Forex allows the trader to do business with a much lesser margin. Also the trader does not have to pay any commission on the trade. All the features of the equity market like options, futures and CFDs are available in the Forex trade also. Since the minimum trade allowed itself is of a large size, operating with margin becomes essential to the trader.

When you buy and sell on Forex, you will trade when you think the currency that you are buying is going to increase in value relative to the one that you are selling. Currencies are always priced in pairs, so a trade consists of one currency being bought while another is simultaneously sold.

If you have anticipated correctly, and the currency you buy does increase in value relative to another currency, you have to market the other currency back to lock in the profit. When a trader buys or sells a specific pair of currencies, he may not immediately sell or buy back the equivalent amount. This is called an open trade or an open position, and selling or buying back the equivalent amount is required to close the position.

In pairs of currencies there is the base currency, which is typically the U.S. dollar, and the counter or quote currency. Quote currencies are expressed in units of one U.S. dollar per unit of counter currency (for example, USD/JPY). There are three exceptions to this rule (the euro, the pound sterling, and the Australian dollar) and they are all quoted as dollars per foreign currency.

Like equities, Forex quotes contain two prices; the bid price and the ask price. The market maker will decide to buy the base currency at some price in exchange for the counter currency, which is called the bid price. The price at which the market maker will sell the base currency in exchange for the counter currency is the ask price.

The bid and ask prices are used to determine the spread, which is the difference between the two. Spreads are used to determine the price of establishing a position. The point, or pip, refers to the final digit in the cost.

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