Statistics say that 7 out of 10 Foreign Exchange (FOREX) traders lose money in the FOREX market. If you are thinking about trading currencies, consider leaning FOREX trading before starting.

Those that are making money in the currency markets usually have access to insider information news or have studied FOREX trading in detail.

Until the internet make online FOREX trading common place for the average individual, it was mostly an activity of corporations, professional traders, and hedge funds.

Although it is relatively unknown for the average person on the street, the FOREX market is the largest in the world. Everyday over $2 trillion trade hands, a figure more than 25 times larger that the daily volume on the US stock exchanges.

The FOREX market has no centralized location and no central governing body. The market trades around the clock.

When you do a FOREX trade you are trading one currency for another. The trade is always quoted in pairs, such as EUR/USD. When you trade in foreign currencies you are always long one of the currencies and short the other. Exchange rates fluctuate based on a number of factors, among them industrial product, inflation and political news.

A EUR/USD trade represents the US dollars that you can buy with one Euro. If you think that the Dollar will increase in value against the Euro, you would buy USD with Euros. If the trade goes in your favor you sell the Dollars back earning yourself a profit. In a EUR/USD trade you are "short" the Euro and "long" the USD.

There is no such thing as insider trading on the FOREX markets. There are also no transaction limits. When buying and selling on the FOREX market you are not really buying anything. The FOREX market is purely speculative. It is estimated that about 80% of the trades on the FOREX market fall into this category.

FOREX trading has many advantages over traditional equity trading, here a some of the most important:

• Most firms don´t charge a commission for trading Forex. Instead they make money on the bid/ask spread. There are no "brokers" in FOREX trading, only dealers that assume the other end of the transaction
  

• Forex is a 24 hour market that you can trade anytime in any part of the world.
  
• You can use leverage, to magnify your gains trading currencies. Of course you also assume more risk and can loose more money.

• It is much easier to learn FOREX trading because you only have to concentrate and study a hand full on currencies. Compare this with the thousands of equities you need to keep up with.

• You can start trading FOREX with a very low minimum amount. Sometimes as low as $25 to open an account.
  

Here are some of the most common FOREX terms you should learn before trading:

Base Currency - Usually the USD, it is the currency in which accounts are maintained. This means that prices are expressed as a unit of USD. Other base currencies are the Euro, AUD, and the British Pound.

Bear - Person that believes the market will decline

Bid - The price an investor is willing to pay

Bid/Ask spread - The difference between the bid and ask prices

Bull - Person that expects the market to rise

Carry trade - Buying a position in a higher yielding currency with a lower yielding one in the expectation of making money on the interest rate spread. The carry trade is the most popular trade in the currency markets.

Cross Rate - Refers to the exchange rate between two currencies

Currency pair - Currencies rates are quotes in pairs. EUR/USD would be an example of a currency pair. The first quoted currency is referred to as the base currency.

Day trading - When a trade is opened and closed on the same day

Devaluation -When the value of a currency is lowered against another

Euro - The official currency of 12 of the EEC countries. The Euro officially started trading in January of 2002

Fixed exchange rate - A currency whose value is not allowed to fluctuate freely

GTC - Also, "good till cancelled", an order that is valid until canceled

Short - Selling a currency that you do not own with the expectation of buying it back in the future at a lower price. A short seller makes money when prices go down

Sterling - Another name for the British Pound

Uptick - A price that is higher than the previous trade

FOREX trading is not for everyone. Like I said at the start, 70% of FOREX traders loose money.

If you trade FOREX on margin the level of risk increases considerably.

You should learn to trade FOREX, evaluate your investment objective, risk tolerance, and you should never risk more that you can afford to loose.