Over the last fifteen years Forex trading has become a popular way for individual investors and amateurs to make good profits from very small initial investments.

However, wherever there are large profits there are equally large risks, and one needs to understand these before taking the plunge and investing money in the Forex market.

What is the Forex Market?

The Forex market is the largest and most liquid market in the world, with daily volumes as high as $3.5 Trillion.  That’s roughly five times the entire cost of America’s war in Iraq, traded every day. Forex Trading is done on a de-centralized, over-the-counter market.  This is where it differs from buying shares – trades are financial agreements made between individuals, and not regulated by any exchange.

How Do I Get Into Forex Trading?

Trading Forex online is very easy to get into, and the barriers to entry are very low.  Initial investments of $50 are common, but there is more to this than meets the eye. Trades are usually geared by as much as 200 times, so a $50 investment exposes you to $1,000 worth of risk – if you lose it all you will be liable for this much.

How Are Currencies Traded?

Currencies are traded in pairs, so for example you will buy the pair USD:GBP.  This means that you are betting that the US Dollar will rise against the value of the British Pound. When you buy a pair you will usually be quoted a ‘spread’.  This is the difference between the price you can buy the pair at, and the price you can sell it for.  When shopping around for an online trading platform, you’ll want to find one that offers you the lowest spreads possible, so as to be able to take profits earlier.