WHAT IS FOREX?
Quite simply, it’s the global market that allows one to trade two currencies against each other.
If you’ve ever traveled to another country, you usually had to find a currency exchange booth at the airport, and then exchange the money
you have in your wallet into the currency of the country you are visiting.
You go up to the counter and notice a screen displaying different exchangerates for different currencies.
An exchange rate is the relative price of two currencies from two different countries. You find “Japanese yen” and think to yourself, “WOW! My one dollar is worth 100 yen?! And I have ten dollars! I’m going to be rich!!!”
When you do this, you’ve essentially participated in the forex market!
You’ve exchanged one currency for another.
Or in forex trading terms, assuming you’re an American visiting Japan, you’ve sold dollars and bought yen.
Before you fly back home, you stop by the currency exchange booth to exchange the yen that you miraculously have left over (Tokyo is expensive!) and notice the exchange rates have changed.
It’s these changes in the exchange rates that allow you to make money in the foreign exchange market.
WHAT IS FOREX?
The foreign exchange market, which is usually known as “forex” or “FX,” is the largest financial market in the world.
The FX market is a global, decentralized market where the world’s currencies change hands. Exchange rates change by the second so the market is constantly in flux.
Only a tiny percentage of currency transactions happen in the “real economy” involving international trade and tourism like the airport example above.
Instead, most of the currency transactions that occur in the global
foreign exchange market are bought (and sold) for speculative reasons.
Currency traders (also known as currency speculators) buy currencies hoping that they will be able to sell them at a higher price in the future.
Compared to the “measly” $22.4 billion per day volume of the New York Stock Exchange (NYSE), the foreign exchange market looks absolutely ginormous with its $6.6 TRILLION a day trade volume.