A question asked by many and yet have received a clear answer of what Forex actually is. Hopefully, after reading this blog you’ll have a clearer image of what the overall meaning of Forex is. Initially speaking, Forex is short for foreign exchange. It’s composed of 2 subcategories such as; Forex trading and Forex market. Comprehending its subcategories, described below, will draw out for you its whole shape and form.
Forex Trading
Forex trading has been around for ages, since Talmudic writings existed (AD300 – 600) which points out how historic and common it has become. Now, when you trade in forex you’re basically buying and selling currencies at thesame time. For instance, let’s say you travelled to New York from Jordan and you want to exchange your Jordanian currency (JOD) to US dollar (USD). You will need to sell your JOD currency in order to buy or exchange it for USD currency.
Let’s now take a look at it on a bigger scale. Did you know that an immense population all over the world are involved in forex trading like individuals, businesses, and even banks? The majority of these people are trading currencies in attempt to earn major profit and that’s what is keeping the forex trading cycle endless. You might ask yourself, so how does all this work? Well, when you look at the trading platforms you’ll notice there are trading currencies paired together because they are simultaneously bought and sold. For example, going back to the JOD vs USD, if you want to invest now in the USD currency you’ll learn that the real time price of selling 1 JOD equals buying 1.41 USD. Any effect that occurs on one currency will occur on the other, so if one increases the other decreases in price instantaneously. The difference as a result of the transaction is called the spread. It’s tricky to choose which currency pair(s) you want to buy and sell and vice versa because the forex exchange rates are influenced by multiple factors. The main factors include: government debt, government policy, recession, speculation, inflation rates, interest rates, and demand for imports and exports. Forex trading is presently a global phenomenon.
Forex Market :- The forex market is a market or setting used by millions of traders 24 hours a day worldwide to continuously buy, sell, and speculate on currencies. The most common participants are central banks, investment firms, commercial companies, retail foreign exchange traders, foreign exchange brokers, and small businesses. The forex market today is the largest and most volatile financial market in the world as transactions of trillions of dollars are taking place every day.
Conclusion
Hopefully, you have a more comprehensible notion of the term forex. It’s actually straight forward and isn’t very complicated. Just remember it’s a shortened word for foreign exchange. It’s divided into 2 subcategories; Forex trading and Forex market. Forex trading consists of transactions of two different currencies and the Forex Market is a place for these transactions to take place. The Forex Market is the world’s largest financial market today. A substantial number of transactions occur every day by a variety of participants like banks, commercial companies, small businesses, individuals, and more. Researching the factors that influence the forex market like government policies, inflation, interest rates, etc. beforehand would be a smart approach before instigating your forex trading participation.
