What is Forex?

Forex is the acronym for Foreign Exchange a marketplace where all currencies are traded. The trading in the Forex is comprised of speculating on, or investing in the current exchange rate or the current price of the currencies. Much like investors who trade shares but with currencies instead of shares. In essence investors of the foreign exchange currencies can try and make informed predictions about the fluctuations in price of a foreign currency. And in turn make a profit much like investors trading shares.

The daily turnover for the Forex market comes from two sources. Foreign Trade which is the buying and selling of products in foreign countries. And the conversion profits of converting one currency to another all this accounts for 5% of the total turnover of the Forex market. Speculation accounts for 95% of the total turnover of the Forex market with the most trading being done in the most liquid currency pairs. Examples would be the US Dollar, Euro, British Pound and Canadian Dollar along with many others. These currencies are often referred to as “the Major s” and account for 85% of the daily Forex trading.

The Forex market is active 24 hours a day, 5 days a week and is accessible to anyone anywhere  (even to you at home). With an average turnover of US$4 trillion Forex is the most traded financial market in the world. And unlike other financial markets in Forex investors can respond to the fluctuating prices of currency immediately. No matter whether it is day or night this is a big reason why the Forex market is the most traded market in the world and active since the Forex marketing became publically accessible.

The fundamentals of Forex are basic, you try to buy a currency at its lowest and try to sell when it’s at its highest. The margin in-between the two prices is your profit or loss depending on how the day went. There is also another method used in the Forex referred to as “short selling”. In which you make a profit by selling a currency at its nearest high and buying it when it’s low. But in a short term of time this will make you less of a profit. But if you make a large number of trades in a short period of time using this method you can make larger profits. Perfecting the art of successfully trading in the Forex takes time and practice. As it’s about learning about all of the factors that affect the price of a currency and what fluctuations they can have in the value of the said currency. This can include a host of things to take into account from national economic outlook to political change or unfortunate disaster. All can have a drastic effect on the value of a currency as a Forex trader it is essential to be able to read these as indications to the fluctuation in the value of a currency.

Thus Forex is considered a high risk for private investors as the level of unpredictability of a currency make Forex trading not for the light hearted. But instead for someone with both the skills and tools to connect the dots. Having said that the Forex is now more public than ever as investors can come in with small amounts of money and short sell to make profits. This has led a lot of people to venture into the world of Forex trading as accessing the Forex market is now mostly done through software. This means unlike before when people had to go through many brokers or financial institutions the process of Forex trading is direct. However if you wish you can trade through a broker as they will help you execute trades and give you advice and tips. Option worth considering when foraying into the Forex market for the first time.

So to sum up Forex is the trading of currencies much like with shares in which investors try and sell at high and buy at low. Either by going long and buying a currency at low and waiting until it rises in value over a some period of time. Or, by short selling and selling a currency at the current market and hoping to buy it later at low.