Forex is commonly used to imply foreign exchange. This is a global platform where buying, selling and exchanging of currencies at various prices takes place. Forex trading involves the trading of various currencies against each other, for instance, the exchange of the Euro against the US Dollar.

Foreign exchange has evolved over the years. In the past people exchanged the currencies only when they travelled to a country with a different currency. Recently, foreign exchange has become a common type of investment among investors. The main aim of this type of investment is making profit. A trader makes profit when he purchases a specific currency and sells it for more than the price which he acquired it. This is because currencies can add or lose value over a period of time.

For example, in January 2005, 1000 Euros were exchanged for 1200 US Dollars and at the end of the year 1000 Euros were exchanged for 1300 US Dollars. This implies that the trader in that situation made a profit of 100 US Dollars.

However, new investors often fail to meet their objectives due to lack of understanding of how the foreign exchange market works. This kind of investment can be very risky but also rewarding if the traders becomes one of the insiders and understands the inside working of foreign exchange market. The main cause of failure among new traders is the use of forex trading leverage. Forex trading leverage allows traders to trade with more than what they have in their accounts. This makes most traders to use leverage without putting into consideration the consequences. Using leverage can be rewarding but it also increases the risk.

Forex trading is done through a broker like CMC Markets. A trader is free to select the broker that presents the best financial option that the trader will thrive on. The trader should analyze and compare the various options presented by the brokers before making a decision. This will enable the trader to select the option that he is comfortable with. After choosing a broker, the next step involves opening a demo account. Usually brokers offer at least a 30day trial for their trading platform allowing the trader to use play money. This step helps the trader to ascertain that the options presented by the broker are comfortable to use. This also prepares the trader for the technical aspect of trading.

Typically, Forex trading involves using leverage. This is also known as trading on margin. With the correct knowledge, trading on margin can be a very rewarding risk. Forex brokers usually offer a leverage ranging from 50:1 to 400:1.

A trader should also familiarize with reading charts before making any trades. There are various types of charts such as lines, bars or candlesticks and time frames that provide the trader with insight of how the currencies are trading. The shorter time frames provide the traders with an insight of how the market is prevailing minute to minute whereas the longer time frame portrays how the market is prevailing over longer periods.

Choosing a currency pair is also another important decision that the trader has to make. The currency pair is what the trader wishes to exchange in value and consequently make a trade. After all those preparations the trader can then make a trade. The trader should maintain a level head and at the same time apply the methods used during the demo account. Traders are often distracted by emotions when making the real trade but once they master their emotions then they can make sound and informed decisions. Failure to make profit should not discourage the trader but should provide a learning experience in order to make improvement.