Forex

Forex or Foreign Exchange trading is the exchange of currency. The daily transaction of the foreign exchange market is $2.5 trillion. In the foreign exchange market a trader trades one currency for another. Buying Euros with US dollars or selling pounds for euros can be a typical example of a foreign exchange transaction.
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The profit in a currency exchange trade comes from the small fluctuations in the value of one currency against another. Leveraging is a strategy which is adopted by traders to maximize their gains in a currency trade. A trader can trade $100, 000 by making an investment of $1000. However, foreign exchange trading is a risky business and traders can lose their entire investments if they are not careful with choosing the right currency pairs at the right price. It's usually adviced to read stock market reviews before entering the market.
95% of forex trade happens for speculative purpose. The rest 5% is for hedging purpose adopted by corporate houses to reduce their risk to currency fluctuations. There are 3 components of a forex trade namely the currency pairs, the principal amount and the agreed rate of exchange.
Some commonly used terminologies in a forex trade are “spread” and “pip”. Spread in the difference between the BID and ASK price of the currency pair. Pip is the smallest increment that takes place in price fluctuations in a currency. It is the fourth decimal digit in the currency rate. Global forex markets operate 24 hours a day over 5 days in a week. It is a highly liquid market giving traders the option to trade in different currency pairs in different markets. A trader can trade in the Japanese market in the morning and by day end close a deal in the US market. There are various risk management tools which gives traders the option to minimize their losses and maximize gains in any forex trade.