FX Trading is not centralized on an exchange, as with the stock and futures markets. The FX market is consider an Over the Counter (OTC) or ‘Interbank’/’Interdealer’ market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network.

The Forex market is a true 24-hour market – at any time of the day, somewhere around the world a financial centre is open for business. Banks and other institutions exchange currencies every hour of the day and night with generally only minor gaps on the weekend. Forex trading beings at 14:15 Eastern Time Sunday markets open in Sydney and Singapore. At 19:00 Eastern Time the Tokyo market opens, followed by London at 2:00 Eastern Time. Finally new York opens at 8:00 Eastern Time and closes at 17:00 Eastern Time – creating a seamless 24-hour market.

A benefit of Forex trading, unlike other financial markets is that investors can respond to currency fluctuations caused by economic, social and political events at the time they occur – day or night.

PIP stands for Percentage In Point. It is equal to 1/100 of 1 percent, or .0001. In forex, currency prices are typically quoted to the fourth decimal. For example, if the EUR/USD pair moves from 1.3410 to 1.3420 it has moved by 10 pips. If the EUR/USD increases by 1 full cent in value (from 1.3410 to 1.3510), it has increased by 100 pips.

A stop loss is an order that closes out your existing trade in order to limit losses. Stop losses are literally used to stop the loss of your trading capital. When your stop loss order is hit on a trade, the trade is closed at the current market value.

When you “go short” you are simply placing a sell order on a currency pair.In forex trading all currency pairs have a base currency and a quote currency. The quote will usually look something like this: USD/JPY = 100.00. The USD is the base currency and the JPY is the quote currency. This quote shows a rate of $1 US Dollar being equal to 100 Japanese Yen. When you place a short trade on this currency pair, you are going short on the USD Dollar and simultaneously going long on the Japanese Yen.It sounds complicated, but you would make this trade if you believed that $1 was going to worth less than 100.00 Japanese Yen(i.e. $1 = 99.00JPY)Unlike the stock market, in forex trading going short is as simple as placing your order. There are no special rules or requirements for going short on a currency pair.

Currency prices are affected by a variety of economic and political conditions, most importantly interest rates, inflation and political stability. Moreover, governments sometimes participate in the Forex market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to lower the price, or conversely buying in order to raise the price. This is known as Central Bank intervention. Any of these factors, as well as large market orders, can cause high volatility in currency prices. However, the size and volume of the Forex market makes it almost impossible for any one entity to ‘drive the market for any length of time.

Margin is essentially collateral for a position. It allows traders to take on leveraged positions with a fraction of the equity necessary to fund the trade. In the forex market leverage ranges from 1% to 2%. Of course, increasing leverage increases risk.

In forex trading, scalping is taking advantage of currency pair changes over a very short period of time. Traders that scalp usually use high leverage and aim for less than 10 pips within a few minutes. Scalping is generally considered to be a dangerous practice by professional traders and is officially frowned on by forex brokers.

Swap is a debit or credit paid or earned as a reflection of the differences of the interest rates in the respective currency pair countries. If you hold a currency pair through the end of the trading day and into the next trading day (4:59 PM EST/EDT) you pay or receive the Swap. For example, if you are long GBP/USD and US interest rates are lower than GBP interest rates you will earn a credit. If you are short the pair, you would be debited.

Buy the rumor, sell the news is something that happens in most markets, particularly financial. Sometimes traders trade based on what they believe will happen in a given economic report or event (the rumor). Once the event passes or the report is released (the news), they dump their positions and the market moves.

The forex market is open almost all of the time! It opens on Sunday night around 21:00 GMT and closes on Friday afternoon around 21:00 GMT. Forex traders can initiate trades at any time between Sunday and Friday.

Forex trading can be very risky if you don’t use proper risk management. Forex is considered to be one of the most risky forms of investing because of the availability of leverage. New forex traders can minimize the risks by learning proper risk management and developing a solid trading plan.

Carry trading is when you take advantage of the interest rate differential between two currencies.

For example, if the interest rate on the British Pound(GBP) is 5.75% and the interest rate on the US Dollar(USD) is 4.25% and you place a buy trade on GBP/USD, you will collect the difference between the two interest rates or 1.50%. As long as you hold that trade open, you will be paid that interest differential every day.