Forex, also known as foreign
exchange, FX or currency trading, is a decentralized global market where all
the world's currencies trade. The forex market is the largest, most liquid
market in the world with an average daily trading volume exceeding $5 trillion.
All the world's combined stock markets don't even come close to this. But what
does that mean to you? Take a closer look at forex trading and you may find
some exciting trading opportunities unavailable with other investments.
FOREX TRANSACTION: IT'S ALL IN
THE EXCHANGE
If you've ever traveled
overseas, you've made a forex transaction. Take a trip to France and you
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 get for
your pounds. And the exchange rate fluctuates continuously.
WHAT IS FOREX?What is Forex?
video for FXCM1:54
A single pound on Monday could
get you 1.19 euros. On Tuesday, 1.20 euros. This tiny change may not seem like
a big deal. But think of it on a bigger scale. A large international company
may need to pay overseas employees. Imagine what that could do to the bottom
line if, like in the example above, simply exchanging one currency for another
costs you more depending on when you do it? These few pennies add up quickly.
In both cases, you—as a traveler or a business owner—may want to hold your
money until the exchange rate is more favorable.
OPPORTUNITIES IN FOREX: WHAT'S
YOUR OPINION?
Just like stocks, you can trade
currency based on what you think its value is (or where it's headed). But 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, you can sell it. With a market this large, finding a buyer when
you're selling and a seller when you're buying is much easier than in in other
markets. Maybe you hear on the news that China is devaluing its currency to
draw more foreign business into its country. If you think that trend will continue,
you could make a forex trade by selling the Chinese currency against another
currency, say, the US dollar. The more the Chinese currency devalues against
the US dollar, the higher your profits. If the Chinese currency increases in
value while you have your sell position open, then your losses increase and you
want to get out of the trade.
