Foreign exchange or FX Trading is currently the largest and most liquid trading market in the world. It basically allows you to speculate on the value of one currency against another. There are many reasons why this form of trading has become so popular, the main one probably is the ease of entry to the market due to the amount of leverage available, the fact that it can be traded 24hours appeals to part time traders and high volatility means it is possible to make large gains (or losses).
Currencies are traded in pairs, with the most popular being GBP/USD, which is also known as cable. To trade on a currency it is important to remember that you are buying if you expect the first named currency to rise and sell if your thinking it will fall. So, GBP/USD is currently being quoted at 1.6253/1.6256. You are expecting some strong economic data to be released by the U.S Government and believe the Dollar will strengthen (Sterling falls) on the back of it. It this scenario you would sell at 1.6253. The market goes the way you hoped and soon after the new quote is GBP/USD 1.6233/1.6236. You can then close the position by buying back at 1.6236 and take a 17 point profit.
As with all trading it’s important to gather as much knowledge and to be as prepared as possible as there are many factors that could affect the markets such as interest rates, unemployment figures and inflation levels to name a few. But there are many news sources available to help you. Additionally, many of the spread firms have excellent educational material and programs that will help you develop a strategy. Charting facilities are common place along with regular seminars and video tutorials.