FOREX (foreign exchange) trading involves the trading of currency on the international foreign exchange market. FOREX is great for both business and individuals because it not only supplements international trade by allowing one business to convert their domestic currency to import foreign goods (and visa versa but it also enables positional traders and speculators to make a profit by betting on the exchange rates of different currencies.
The FOREX markets (also known as FX or currency trading) were started in the 1970s when liberal governments moved from a US Dollar fixed-exchange rate system to a floating exchange rate agreed upon at the Bretton Woods Conference. It was the fixed exchange rate system implemented shortly after the end of the second world war which replaced the international gold standard system too.
In terms of its size and liquidity, fore is around 40 times the size of the equities markets and 14 times bigger than the bonds market. The Bank for International Settlements estimated that global daily turnover on forex for 2010 is around $3.98 trillion, which represents a 20% increase in growth over the previous year.
The main attraction for trading on forex markets, in terms of speculations and making a profit, is that it has massive liquidity, tight spreads and unlike other financial markets such as the FTSE or N&P 500 it runs 24/7. Traders can make massive profits trading on different currencies and speculating on their movements through spot trades, currency swaps, scalping and options or futures. In fact, around 70-90% of total forex transactions and turnover are thought to be made by positional traders i.e. those who have no interest in actually holding on to a currency but rather aim to make a profit by its downwards/upwards movements. Since 1996, the majority of the growth seen in forex markets has been by hedge funds, however nowadays lots of other investors such as money manager and retail investors are looking to forex as a means to supplement their investment portfolio and hedge some of the risk from their deals in other markets.
In terms of how to start trading on forex, virtually anybody can open an account at an online FX platform, deposit money and begin trading. Most FX platforms such as dbFX and eToro also offer demo accounts for new forex traders, which allows them to gain practice trading on the markets, taking up positions, managing stop-loss accounts and investing $10,000 to $50,000 in play money. One of the main advantages of setting up a forex account is that the margins and leverage are huge in comparison to other forms of investment, such as spread betting or conventional day trading. FX platforms often provide leverage of 100:1 up to 200:1, which means with just a $100 deposit you can take up transactions with a value of $20,000. Of course there is a big risk involved in that you can end up losing just as much money since you are highly geared and indebted to the broker, however for new forex traders the high margins allow you to make massive profits from a small starting capital or initial deposit.