Don’t Even Attempt To Trade If You Don’t Know The Exact Meaning Of Forex Yet

What is Forex exactly? It is the foreign exchange market, which is a global financial market for trading currencies around the world.

Why the Forex? There is a variety of reasons for this market, usually for commerce or even tourism. It is to help with international trade and investment by letting businesses change one currency to a different currency.

One example would be, a United States business is allowed to import say, British goods and pay Pound Sterling (the monetary unit of the United Kingdom) though the business’s income is in US dollars.

Also it supports the speculation and makes carry trade easier, where investors borrow low yielding currencies and lend high yielding currencies, which some say may lead to a loss of competition in some countries.

A usual transaction is that a party purchases a quantity of one currency by paying a quantity of another currency. Some say it’s a global over the counter financial market.

Modern foreign exchange began forming during 1971 when countries eventually started switching to the floating exchange rates from the previous exchange rate system which was a fixed exchange rate of the Bretton Woods system. After this adaption when currencies were allowed to float freely against each other the value of individual currencies varied. Which has caused a need for foreign exchange services.

It is a very unique market, its got a huge trading volume which leads to high liquidity. It operates continuously 24 hours a day except on the weekends, it has low margins of relative profit compared with other markets of fixed income and because of its geographical dispersion. Its use of leverage that enhances profit margins compared to account size. And it has been referred to as the market closest to the ideal of perfect competition.

Until the beginning of the internet, currency trading was really limited to interbank activity on behalf of their clients. But with the rapid spread of the internet, a retail market aimed at individual traders has rose up and that provides an easy access to the foreign exchange markets, either through the banks themselves or through brokers.

So what is Forex? I think the dictionary’s definition explains it best. It’s commercial paper drawn on a person or a corporation in a foreign nation and the process of balancing accounts in a commercial transaction between business organizations of different nations. The system in which one currency is converted into another currency and enabling international transactions to take place without the physical transportation of gold.