What is forex?
Forex is short for foreign exchange; which means exchanging one currency for another for a variety of reasons, usually trading, commerce or tourism.
Let us take a look at an example to understand how fluctuations in currency rates can lead to profits/losses.
Assume a person is travelling from the US to Italy for vacation. Let us say he exchanges USD 10,000 to euros. Assuming the USD/EUR rate at that time was 0.91000, he now has EUR 9100. When returning from Italy let’s say he has EUR 1000 left with him which he hasn’t spent. The value of this amount is USD 1098.90 based on the rate at which he had exchanged it at the start of his trip.
Let us assume that in this short time period, the euro has grown stronger compared to the US dollar and the exchange rate is now USD/EUR 0.86000. On exchanging the remaining euros to dollars, he is able to get USD 1162.79.
Thus, this person has unintentionally made a profit of about USD 63 from this transaction.
Forex traders make transactions in the forex market similarly, but with the intention of making gains from such fluctuations in currency exchange rates. They study the economic and political conditions and predict the trend in which the market is going to go.
Based on that, they either buy or sell a currency which they later sell or buy back respectively.
This is forex trading.
Note: In Exness we offer CFDs (Contract for Difference) on forex, which means that there is no physical exchange of currencies. Clients only bid on the difference in price of the currencies involved in a particular currency pair of their choice.
Understanding the forex market
The market where foreign exchange transactions are carried out is known as the forex market. It is an international market where transactions are carried out electronically over-the-counter (OTC) - via computer networks between traders around the world, rather than on one centralized exchange.
Features of the forex market
- The forex market has a daily trading volume in excess of $5 trillion. No commodity market, futures market or stock exchange can equal forex.
- Forex trading occurs round the clock, Monday through Friday. The forex market makes it possible for a currency to be bought and sold by various market-maker banks, brokerage companies (such as Exness), independent brokers, investors, and traders.
- Quotes (or prices) are in perpetual motion and react to many trading, economic and other indicators, interest rates, bank operations, the time of day and the preferences and expectations of traders.
- Client transactions are executed over easy-to-use trading platforms such as MetaTrader 4 or MetaTrader 5. With the help of such platforms, every trader can receive quotes in real-time mode from market participants, such as banks and marketmakers.
Exness is a broker that offers high quality trading services to clients all over the world. It provides a convenient platform for carrying out these transactions and also offers very low spread which is always a win for the forex trader.