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Foreign exchange (forex) or currency trading is a highly liquid worldwide market with a massive daily trading volume. Forex trading, like many other investments, is not for the faint of heart or the inexperienced trader. After you've learned the ropes, the forex market has some distinct advantages over other markets.

It's a 24-Hour Market for Five Days

Because the forex market is global, trading can take place at any time as long as a market is open somewhere in the world. Trading hours begin in the United States on Sunday at 5 p.m. Eastern time, when the first major market in Sydney, Australia, opens. The last major market, in New York, shuts at 5 p.m. on Friday, bringing the week's trading to a close.

There's High Liquidity

Liquidity is the ability of an asset to be quickly converted into cash. In the world of forex, the high liquidity means large amounts of money can be moved into and out of currencies with generally small spreads—the differences between the bid prices for potential buyers and the ask prices for potential sellers.

Transaction Costs Are Low

In the forex market, the cost of a transaction is often included into the price as a spread. The spread is kept by the best online forex brokers as compensation for facilitating trades.

Pips are the units of measurement for spreads. A pip, or 1/100 of a percent, is the fourth place following the decimal point in most currencies. (A pip is the second place after the decimal point, or one percent, in Japanese yen trading.)

The spread for a forex transaction was 2 pips if the bid price was 1.3244 and the asking price was 1.3246.

Brokers may also charge a commission, which can be a fixed fee or a percentage of the transaction's value.

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