Reviewing Forex Basics: Don't Lose the Forest in the Trees

Every so often it's a good idea just to go back and remember the basics of the Forex market and what the Foreign Exchange Markets are all about. For the seasoned trader this might be a basic review, but that's never hurt anyone, while the newbie might get some good information out of this.

If nothing else, this article will keep you thinking about the Forex and help keep your mind in the game. This is one market where you definitely don't want to get caught with your eye off of the ball.

What Is The Forex?
Forex is short for the Foreign Exchange market, and although "Forex" is the most common abbreviation, it can also be referred to as "FX," "Spot FX," or sometimes just plain old "foreign currency trading."

The Forex market is the largest trading market in the world and the competition will never come close. On any given day, the combined trading volume is over $2 trillion, meaning in a single week more currency is traded in the Forex than is currently owed by the staggering debt run up by the U.S. government.

Trading Currency Pairs = Betting on an Economy
What can be confusing early on for someone trying to learn the Forex from either the stock or commodities market is understanding what you're trading.

In stocks and commodities, it's easy. You're buying or selling a part of a company, or corn, or oil. In the Forex you're exchanging one currency for another because in a sense you are buying a small part of a nation's economy.

If you're buying the Japanese Yen (JPY) against the U.S. Dollar (USD), it means you believe Japan's economy, at least in the short term, will look better than the United States.

When Forex trading, you should definitely stick with the 8 "major currencies" traded. When you make a purchase, two of the currencies will be listed. If you're buying Japanese Yen with US Dollars, the pair will look something like (USD/JPY). The first currency is the one you currently have and the second currency is the one you wish to purchase.

24/6 Trading
Remembering that the Forex market is open 24 hours a day for six days a week is very important, because you want to remember that using stops and trailing stops is critical because while you're sleeping, there could be news that directly effects your trade and it would really stink to lose a 100-200 pip profit on your trade because of something that occurred at 3 a.m. your time.

Potential is your friend in this market. Knowing when you can make the most profitable trade is vital to your success. Technical analysis and testing is even a better friend in the Forex. Like the old saying goes: "The early bird gets the worm, but the second mouse gets the cheese."