Answering a basic question, what is Forex Trading? Is it similar to Stock Trading? The Forex abbreviated as Foreign Exchange Market is all about of selling and buying currencies of different countries in the world. The difference in stock market trading and Forex trading is only the transacted product. Forex is Over the Counter market, which allows you to trade various currencies available around the globe. Forex trading is now the most liquid financial market that operates 24 hours nonstop. The rules and regulations in the market are determined by CFTC (Commodity Futures Trading Commission). The regulations are authorized by NFA (National Future Association) to market traders and brokers. The Forex trading has a business trading worth of $2-3 trillion dollars daily.

The terminology of Forex trading has to be understand to know before anyone starts Forex trading. Some basic terms are listed below:

1. Cross Rate:

Currencies are always traded in pairs in forex. For example, 1.4582 EUR/USD is read as 1 Euro is equal to USD 1.4582. The US dollar in this currency pairs is not the exchange rate being determined, but the EUR is. The EUR that serves the referred exchange rate is known as the cross rate.

2. PIP:

PIP is the smallest price movement in currency that is abbreviated as Percentage in Point. PIP holds a crucial role in forex trading, because it determines how much profit a trader have made. There is certain pip measurement, for example, 1 pip is equal to.001 for EUR/USD currency pair. It means that 1% increase in EUR/USD will take 100 pips increasing movement.

3. Bid-Ask Spread:

The bid represents cost price of the dealer and ask represents the selling price of the dealer. They are always quoted in pairs and the difference between bid and ask is known as the spread. When you see a figure such as.709560-56 EUR/USD, the bid price refers to.709560 and the ask price refers to.709556. The market makers determine the bid-ask quotation and they can generate profits from the bid-ask difference or spread.

The competitors in the market will be people who trade like every individual and some big financial institutions. The Governments, the Banks, large Business Firms etc., trade with the currencies. The retail Forex brokers are available on Internet to help an individual to trade the Forex with a small investment and make good profits.

People make money by selling a currency to higher price than that they bought for lower prices. This can be easily done when you know the rise of fall of the currencies of those particular countries that a trader is trading with. But many factors needed to be considered to predict the trends in the movement of the prices of the currencies. You only deal with real cash in Forex trading.

To analyze the forex market and to predict the rise and fall of the market, there is analysis which is need to be done. The first and the foremost that many of the traders go for is the technical analysis. Most of the traders will follow the technical analysis to predict the market movements. This technical analysis is done on the basis of many mathematical algorithms and various trend line indicators.

Now there are many automated forex tools which they themselves do the technical analysis for the traders and automatically place the buy and sell orders to the brokerage firms. With the existence of such tools forex trading has become a bit easier even for a new forex trader. The automated forex tools are called as the “Automated Forex Trading System Software’s”.

The second one is the fundamental analysis. In general, many of the traders do not concentrate much on this analysis. This fundamental analysis deals with the various factors that affect the economical conditions of a country. In reality, this fundamental analysis is little tough to analyze and thats the reason many of the traders do not put much concentration on fundamental analysis.

To become successful in forex trading, it is very necessary for any trader to consider both the technical analysis and fundamental analysis before trading the forex. Technical analysis and the fundamental analysis are like the two sides of a coin in the forex market.