The Foreign Exchange Trading Process

Traders trade foreign currencies in hopes that they can profit from the changes in the exchange rate between the two currencies. In order to gain access to the Foreign Exchange market, commonly called FOREX, you have to open an account with a broker and begin trading. You also need a basic understanding of currency pairs and how to trade them.

Currency Pairs

One of the most basic terms in the FOREX market is "currency pair." In order to trade the market, you have to understand what a currency pair is and how it works. Currencies are paired with other currencies in standard pairs. For example, if you wish to trade the Euro against the United States Dollar, you would trade the EUR/USD pair. When you buy the EUR/USD pair, you are really buying the Euro and selling the dollar.


The majority of traders in the market are institutional traders. Institutional traders are exchange banks who exchange with other banks every day. This market is the single largest financial market in the world because of the size of the institutional traders involved. Individuals can also get involved by working with a FOREX broker. People trade this market from all over the world at all times. Traders can access the market 24 hours a day five days per week.


In order to trade the market, you have to have an account with a FOREX broker. FOREX brokers are situated all over the world and there is not a central agency that governs all of them. You can open an account by filling out a basic form and proving your identity. Then you can fund the account with a payment through check, credit or debit card or wire transfer. At that point, you can trade currencies in the market.


Once you have an account with a broker, you can download the brokers trading platform to your computer. This trading platform will allow you to look at price charts with real-time pricing information on all of the major currency pairs. You can use indicators and other tools on the trading platform to aid in your trading decisions. Once you are ready to place an order, you can do so from your platform without contacting the broker.


When you decide that you want to get into the market, you can place one of a few different types of orders. If you want to get into the market as quickly as possible, you can simply place a market order. This fills your order at the price that is available in the market. You could also place a limit order that fills your order once the market gets to a certain point.