What is forex trading? It is the simultaneous buying of one currency and selling of another. For example, buying Euros and selling U.S. dollars.The price at which this is done is the spot foreign currency exchange rate. If you have ever exchanged foreign currency at a bank or airport, then you are already familiar with foreign currency exchange rates. It is nothing more than the value of one currency in terms of another currency. It'll take only a little bit of practice to become accustomed to how foreign currencies are quoted. To help, take a look at Reading Forex Prices at right.

Speculators desire to trade forex for the opportunity to profit from a movement in currency exchange rates. For example, if a trader believes that the Euro will weaken relative to the U.S. dollar, then the trader can sell Euros against U.S. dollars in the forex market. This is referred to as being "short Euros against the dollar" which, from a trading perspective, is the same as being "long dollars against the Euro". If the Euro weakens against the dollar, then the position will profit. Take a look at the table below that shows sample forex price movements and the resulting profit or loss that would result from a corresponding forex trade.

While currency futures have been available for quite some time - since the 1970's - the forex market gives you essentially the same trading opportunities but in a different way. Most importantly, the forex market is "over-the-counter" meaning that trades occur over electronic systems and directly between buyers and sellers (no intervening broker). So, you can trade forex directly from your computer and essentially 24 hours per day. For more information, please see Forex Advantages at right.

Earning profit from trading forex is just like earning profit from trading any asset: you want to buy low and sell high, or sell high and then buy back low. Please see Trading Forex below. To assist with this, most traders rely on technical analysis such as trend analysis, cycles and Fibonacci retracements. It also helps to keep an eye on the fundamental factors that drive exchange rates - mostly, short-term interest rates and expectations of changes in these interest rates.