The growth of the Internet and the evolution of online Forex trading platforms in the 21st century have contributed to the growth of Forex trading as the highest volume and most liquid speculative market in the world. According to the "Baby Pips" website, nearly $4 trillion in foreign currency value exchanges hands daily, as of October 2010. Many resources exist for online currency traders to learn, including demo accounts and tutorials offered by Forex broker sites.
Basics
Foreign exchange, often referred to by its short name Forex, is simply the conversion of one monetary currency into another. While the ability to exchange one currency of value for another has existed since the origin of money, Forex trading has taken off as an investment opportunity in the late 20th and early 21st centuries. Forex trading involves buying or selling one currency relative to another. The evolution of the Internet and the connecting of major exchanges around the world has created a great marketplace for online Forex trading. Traders also have access to a wide array of educational resources offered by brokerages and other online trading sites.
Forex Brokers
Forex brokers provide online trading platforms through which individual Forex traders can set up accounts and transact in the market. Application and approval for an account varies, but is generally simple. You can usually fund accounts through check, account transfer, or debit or credit card. Once funds are in your account, you can buy and sell currency pair positions. Brokers offer the ability to trade in a number of currency pairs, often eight to sixteen total. Forex trading takes place through a number of interconnected global currency trading systems known as interbank. Major exchanges in New York, London and Tokyo drive much of the volume and price movement in Forex.
Online Trading
Online brokers offer a trading platform, often an online application or web portal through which you can access your account and make trades. Before using a live account, you should spend significant time researching and trading through a usually free demo account to learn and develop strategies.
Currency trading takes place through currency pairs. If you want to trade the euro and dollar (EUR/USD), you would buy the EUR/USD if you believe the euro will increase in value against the US dollar. You would sell, or short this pair if you believe the euro is going to decrease in value against the dollar. If you correctly pick the movement of the pair, you can sell (on a buy) or buy (on a short) to exit the position and take profit. If the pair moves against your position, you need to have an exit strategy to minimize losses.
Additional Insights
Online Forex trading accounts typically include margin opportunities. This means that you can trade in value that is greater than your account balance. This means that you can potentially profit bigger gains, but you are also at risk at quickly burning through your funds if you invest poorly. Forex has significant risk of loss, which is why trading sites and others include disclaimers noting that currency trading is not for everyone and that significant risk of loss exists. Before trading Forex online, it is wise to trade on a practice account and to develop strategies and discipline to have a better chance for success.
Source - eHow
