What is forex? This is a hard question. There are such a lot of web sites and television adverts that mention currency exchange nowadays. You almost certainly know that it is a way that you can earn cash, but what precisely does it involve?
The word forex is short for FOReign EXchange. You can see it shortened farther to FX or 4X. Say you were planning to go overseas. The currency of most states in Europe is the EUR, so you would want to exchange USD from your bank for euros so that you would have some money to spend while you are there. You could buy $500 worth of EUR 2 weeks before your trip. But then, something comes up at the last moment and you cannot go to Europe after all. So you change the cash back into dollars and put it back in your bank. Now, in the two weeks you had those euros, the value of the EUR against the dollar will have changed at least a bit. Usually it doesn’t change a whole lot and because of the bank’s commission, you would find you get back less than your original $500. But if the value of the dollar actually fell in that time, or the euro rose by a lot, you might end up getting back more than $500. Then you would have made a decent profit from forex. So when we look at what is foreign exchange as a technique to make money, that is a straightforward illustration. However, folks who start currency trading don’t do it by buying foreign currency bills from their bank. It is a little like taking options in shares. This is what attracts the majority to foreign exchange trading, and why understanding what is foreign exchange can be helpful in today’s world.
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