FOREX EXCHANGE,
commonly known as ‘Forex’ or ‘FX’, is the exchange of one currency for
another at an agreed exchange price on the over-the-counter (OTC)
market. Forex is the world’s most traded market, with an average
turnover in excess of US$5.3 trillion per day.
If you’ve ever traveled to another country, you usually had to find a
currency exchange booth at the airport, and then exchange the money you
have in your wallet (if you’re a dude) or purse (if you’re a lady) or
man purse (if you’re a metrosexual) into the currency of the country you
are visiting.
You go up to the counter and notice a screen displaying different
exchange rates for different currencies. You find “Japanese yen” and
think to yourself, “WOW! My one dollar is worth 100 yen?! And I have ten
dollars! I’m going to be rich!!!” (This excitement is quickly killed
when you stop by a shop in the airport afterwards to buy a can of soda
and, all of a sudden, half your money is gone.)
When you do this, you’ve essentially participated in the forex
market! You’ve exchanged one currency for another. Or in forex trading
terms, assuming you’re an American visiting Japan, you’ve sold dollars
and bought yen.
Before you fly back home, you stop by the currency exchange booth to
exchange the yen that you miraculously have left over (Tokyo is
expensive!) and notice the exchange rates have changed. It’s these
changes in the exchanges rates that allow you to make money in the
foreign exchange market.
Essentially, FOREX TRADING
is the act of simultaneously buying one currency while selling another,
primarily for the purpose of speculation. Currency values rise
(appreciate) and fall (depreciate) against each other due to a number of
factors including economics and geopolitics. The common goal of forex
traders is to profit from these changes in the value of one currency
against another by actively speculating on which way forex prices are
likely to turn in the future.
Very informative. I didn't know it was referred to as forex
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