What is FOREX?

Submitted by Edward Revy on January 28, 2007 - 08:06.

The term “FOREX” stands for Foreign Exchange

FOREX (or FX as a short abbreviation) is a global currency exchange market where foreign currencies from all over the world are bought and sold for profit.

FOREX is the largest and most liquid market in the world

Forex is the largest and most liquid market in the world where trillions of dollars exchanges take place every day. That’s an enormous money flow. No stock market exchange in the world come close to these numbers.

Currencies in the Forex market are traded 24 hours a day 7 days a week. Market literally follows the sun around the world. Trading moves from major banking centers of the United States to Australia and New Zealand, then to the Far East, gets to Europe and finally returns back to the States.

Trading FOREX is all about exchanging currencies

Trading on Foreign exchange market simply means buying of one currency and selling another at the same time. In other words, the currency of one country is exchanged for currency of another country at the current exchange rates.

Foreign currencies are always traded in pairs - EUR/USD, GBP/USD, EUR/JPY etc. Around 70% of all transactions made with major currencies like U.S. dollar, Australian Dollar, British Pound, Swiss Franc and Japanese Yen.

Nowadays FOREX is available to small investors

While in the past Forex market was not available to small investors (individuals) due to large minimum transaction sizes, today Forex brokers are able to break those large sizes into a smaller unit lots and thus offer small investors an opportunity to buy or sell currencies side by side with regular core Forex market investors such as large banks, central banks, multinational corporations, hedge funds and other financial institutions.

Being incompetent in FOREX can be expensive

Forex market is huge and plunging into trading without knowing its rules, will be equal to swimming in the pool with ocean sharks. The dominant Forex players such as banks and hedge funds have a power to influence market moves and currencies exchange rates. For inexperienced traders investing own money in such game is as risky and uncertain as gambling. It could turn into a million fortune only in a couple of weeks or become a disaster for those who was ignorant in learning.

Forex brokers offer very big leverage to individual investors. A trader can trade at huge leverage as much as 300 to 1, meaning that for every dollar trader puts in for trading he can trade $300. For example, having an account equal to $1,000 trader can trade as much as $300,000.
It is a huge opportunity, but it also is very dangerous. No experienced trader will ever trade with such big leverage unless he has a really strong argument for a particular trade, and even after that it is an enormous risk.

Is trading FOREX profitable?

Trading in the Forex market is profitable, but only for 5% out of all beginner traders who start trading Forex. New traders need to learn the basics of trading well, and practice a lot on demo accounts before going real.

Like in every business, when trading money in Forex, trader gets paid depending on his knowledge and trading experience.

Watch a video: "What is the FOREX market?"

It tells in simple words what Forex market is, describes why people choose to trade Forex,
and what are advantages and disadvantages of trading Forex.
*The video "What is Forex" is brought by a third party.
We do not promote or try to recommend any products mentioned in the video.

Find detailed financial information about Foreign exchange market at Wikipedia

Read an booklet Trading in the Retail Off-Exchange Foreign Currency Market”, prepared by NFA (National Futures Association).

Learn and achieve your goals with Forex!

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