FOREX - a short term for foreign exchange. It is actually the
buying and selling of currencies anywhere in the world. It is the exchange of
one currency from one to another at an agreed price over the counter (OTC). You
don't have to be an extensive trader to participate in the forex market because
every time you travel abroad and exchange your money into foreign currency that
is actually participating itself. You do this in order to conduct foreign trade
and businesses this is considered one of the fastest growing markets in the
world that is why a lot venture into this field.
For example, if an American wanted to travel around France to
see the Eifel tower, he can't pay in dollars since the local currency accepted
there is Euros. Therefore, he needs to exchange his dollar in local currency in
France at the current exchange rate.
You convert your currency in the many local money exchange
outlets located in the area that you are travelling to. A foreign exchange
market exists wherever the trades of two foreign currencies are taking place.
Also, you can do this in the bank depending on the exchange rate that you would
prefer. The over-the-counter forex market has no physical location and operates
24 hours a day through different businesses and individuals unlike most
financial markets. This is the reason why the currency prices are constantly
changing in value against one another. This is the reason why when you look at
one outlet to another, they do not have fixed rate in terms of money exchange.
FOREX TRADING -Forex trading works much like it does with
stocks, you buy low and you sell high. The benefit of trading forex is that you
don’t have to choose from thousands of companies or sectors.
For example, most people have an opinion on the US dollar and
the US economy. This is because US is one of the most powerful country in the
world thus, many people are looking up to them. Buying or selling US Dollars as
simple as they buying or selling a company’s stock.
Foreign exchange has been also a way for businessman to make
money from. Many brokers have been wealthy just because of investing their
money from forex. Foreign exchange is a leveraged product, which means that you
are only required to deposit a small percentage of the full value of your
position to place a forex trade. This means that the potential for profit, or
loss, from an initial capital outlay is significantly higher than in
traditional trading. Foreign exchange can also be compared to stock trading. A
person will buy a stock from the stock market if he thinks that the value of
this stock will rise in the future making him gain profit from what he bought.
On the other hand, he will sell a stock if he thinks that its price will fall
in the future. Just like in foreign exchange, a trader will buy a currency pair
if he thinks the exchange rate of those currencies will rise in the future and
will sell the currency pair if he expect is rate to fall in the future.
There are also a number of factors that would affect the
prices of forex. Some of them are political and economical stability, monetary
policy, currency intervention and natural disasters.