What is forex?


Forex, also known as foreign exchange, FX or currency trading, is a decentralized global market for all currencies traded worldwide. This market is the largest and most liquid in the world, with a daily trading volume in excess of $5 trillion. The other stock markets in the world as a whole do not come close to this. But what does this mean for you? Take a closer look at forex trading and you will find interesting trading opportunities that are not available in other investments.


If you’ve ever traveled abroad, you’ve traded forex. Travel to France and convert your pounds into euros. When you do this, the exchange rate between the two currencies – based on supply and demand – determines how many euros you’ll get for your pounds. And the exchange rate fluctuates continuously.

On Monday a pound could get you 1.19 Euros. On Tuesday 1.20 Euros. This small change may not seem like a big deal. But think about it on a larger scale. A large international company may have to pay foreign employees. Imagine what it could do to the bottom line if, as in the example above, exchanging one currency for another costs you more depending on when you do it? Those few cents add up quickly. In both cases, you as a traveler or business owner may want to hold your money until the exchange rate is more favorable.


Just like the stock market, where you can trade currency based on what you think it is worth (or where it is headed). The big difference with Forex is that you can trade up or down just as easily. If you think a currency will increase in value, you can buy it. If you think it will decrease in value, you can sell it. With such a large market, finding a buyer when you are selling and a seller when you are buying is much easier than in other markets. Perhaps you hear on the news that China is devaluing its currency to attract more foreign business to the country.

If you think the trend will continue, you could make a forex trade, selling the Chinese currency against another currency, for example, the U.S. dollar. The more the Chinese currency depreciates against the dollar, the higher your profits will be. If the Chinese currency increases in value while you have your sell position open, then your losses will increase and you will want to exit the trade.


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