Getting to grips with forex markets

LEARNING how forex markets work can be an extremely interesting, albeit dynamic, journey, and one that will fully test you as a trader. On a pure fundamental basis, there are many key differences from trading equities or commodities, for example; however the more technical-focused traders would find the prospect of excellent liquidity and 24-hour, five-days-a-week markets quite a compelling proposition.

As with anything in trading, understanding the product and risks and having a stringent risk and money management strategy are paramount when becoming more involved in the FX market.

Firstly, currency trading is a relative game, where you are simply playing one currency against another. If you feel the Australian dollar will appreciate against the US dollar, for example, (i.e. the AUD/USD exchange rate goes from $0.7600 to $0.7700), you simply buy the pair. Your directional bias is expressed through the first named currency, but your profit and loss (P&L) is made in the second named pair.