Forex, which is short for foreign exchange, is fairly simple to understand and quite profitable if you develop smart trading habits. First of all, although Forex is short for foreign exchange, the actual asset class is currencies. The concept is simple, you are changing the currency of one country for the currency of another country. Although the concept sounds simple enough, beginning investors must familiarize themselves with some of the basic trading principles and terms related to currency trading.
Foreign exchange is not an actual market like the New York Stock Exchange or the London Stock Exchange. Many beginning investors often believe the term is an actual market. All currency trades occur electronically through a series of connected computers and traders. Currency traders can execute trades 24 hours a day from anywhere in the world.
There are three ways individuals can trade the Forex market: the spot market, the futures market and the forwards market. The spot market is the most popular market because it contains the underlying assets that dictate the forwards market and the futures market. Traders buy and sell currencies using the spot market based on the current price of the currencies. The forwards market and the futures market deal in contracts that gives traders a claim to specific currencies at a specified price and a future settlement date.