Forex, also referred to as foreign exchange, FX or money trading, is a decentralized international market where all the world’s currencies trade.
The foreign exchange market is the largest, most liquid market in the world having an average daily trading volume exceeding $5 billion trillion. All the world’s combined stock markets do not even come close to this. However, what does that mean to youpersonally? Take a closer look at forex trading and you might discover some exciting trading opportunities unavailable along with different investments.
FOREX TRANSACTION: IT’S ALL IN THE EXCHANGE
If you have ever traveled overseas, you have made a forex transaction. Have a trip to France and you convert your pounds to euros.
If you do this, the forex exchange rate between both currencies–based on supply and demand –determines the amount of euros you receive on your pounds. Along with the exchange rate fluctuates continuously.
A single pound on Monday could get you 1.19 euros. On Tuesday, 1.20 euros. This very small change might not seem like a huge deal.
But consider it on a bigger scale. A big international company might have to pay overseas employees. Imagine what that might do to the bottom line if, such as in the example above, simply exchanging one currency for another costs you more depending on when you get it done? These couple pennies add up fast. In both cases, you as a traveler or a business owner might choose to hold your money until the foreign exchange rate is more favourable.
OPPORTUNITIES IN FOREX: WHAT’S YOUR OPINION?
Just like stocks, you can trade money based on which you believe its value is (or where it’s headed). But the major difference with forex is you’re able to trade up or down just as easily. If you believe a currency will likely increase in value, you can buy it.
If you believe it will decrease, you can sell it. With a market this big, locating a buyer once you’re selling and a seller when you are purchasing is much easier than in in other markets. Maybe you hear on the news that China is devaluing its currency to draw more overseas business into its country.
The greater the Chinese money devalues against the US dollar, the greater your
profits. If the Chinese currency increases in value while you have your sell position open, then your losses increase and you also would like to get out of the trade.