What is foreign exchange trading? How does Forex (foreign exchange) trading work? What should new investors looking to start Forex trading watch out for? Maybe we can answer all these queries and more!

Forex trading is a common and lucrative way to earn money. Nonetheless, one should be wary of the pitfalls this business venture entails. This business is ideal for anyone who is enterprising enough to engage in a risky yet thrilling way to earn profits.

Foreign Exchange, also known as Forex and FX, is one of the largest money markets in the world. The Forex market was launched in the early seventies. It pioneered free exchange rates according to which foreign exchange rates were to be determined by demand and supply. Unlike other financial markets, this does not have any tangible location. It is a forum for unrestrained buying and selling of currencies. The market, which oversees the trading of more than $1.5 trillion USD on daily basis, provides high prospects for the average as well as high investor.

Beginners in the trade who get discouraged by the risks involved should take heart from the fact that there are many forex traders out there who have persevered to reap large sums of profit. So the risk is worth taking. But it is very essential to know the nuances of the trade. First time investors looking to invest huge sums of their hard earned money should know what to expect and what not to expect. They should also take due note of the precautions to be taken for avoiding scams and frauds.

New traders aiming to make a decent beginning would find it helpful to bear the following things in mind.

• You have to begin by opening a forex account. You will need to fill in an application form, furnish requisite personal details and documents. You will also need to reveal whether a broker's mediation with any trade will be permissible in case it appears to get excessively risky and unstable. You can begin diverting cash to your account once it's ready.

• You are recommended to create two accounts while trading: one a real account, the other a demo. While the real account would be used for trading with real money, the demo account helps gain an understanding of the trading business. The new trader can use this account to hone his trading skill without being vulnerable to any loss incurred after making an incorrect move.

• Study the top five currencies and their current rates before starting. You must be aware of the market trends and not miss out on anything. The top five forex currencies that you must follow are: Pound/USD, Euro/USD, USD/Yen, Euro/Yen and Swiss franc/USD.

• Keep a regular check on the market and all the currencies related to your trade on an hourly, daily and weekly basis.

• It pays to be enterprising, literally! If you desire to be a successful trader, you should come up with unique and innovative strategies. There is no overarching rule or method that works in this trade. However, you are encouraged to study past records, techniques and fundamentals to gauge the pattern of currency trends and predict future trends.

There are several factors which make foreign exchange a unique financial market. At the outset, there is not any external regulatory authority to lay down currency prices or rates. This makes the forex market immune to any outside control. Moreover, unlike other money markets, it requires minimum trading education, training and skill.