Forex stands for a foreign exchange (market) where dollars, Euros, and yen, the main currencies of countries like the USA, Japan, and the members of the European Union, are traded daily. Simply stated, these currencies are bought and sold. The purchase value of these currencies, in comparison with each other, keeps fluctuating on a daily basis due to the economic and political situation prevailing in the respective countries. Forex trading functions like any other trade. You buy a commodity when it is cheap and sell it at a profit when its price goes up. Or, if you are not lucky enough, the price of the commodity may go down and you may be forced to sell it at a loss.
Since the fluctuation in the value of the currencies takes place very quickly, you can make quick profits. On the flip side, you may lose equally fast as well.
Forex traders study the political and economic trends in the economically important countries, including USA, Japan, England or the European Union, and make an assessment of the present or future purchase values of these currencies in comparison with each other. Again, the process of sale and purchase is like any other market activity, except that the time period varies.
Consider a situation where you think that the price of a given commodity, say, silver, gold, or wheat, will increase in the near future. You invest in its purchase and wait for some time until its price increases to your satisfaction, and then you sell it off. The same applies for the forex market as well, except that the retention period in the foreign currency market is usually not very long. You buy and sell, sell and buy, since the prices rise and fall very quickly, and in this way you either gain or lose.
The profit potential of any business venture is determined by the risks involved in it; the greater the risks, the higher the profits. This holds particularly true for the forex market. Fortunes are made or marred in a matter of minutes or even seconds.
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Written By: Thomas Morva
