What is Forex?

Forex is a term used frequently to abbreviate "foreign exchange," and it is often utilized to describe investment in the foreign exchange market by traders and speculators.

With a trading volume well of 5 trillion dollars, for example, you can imagine a situation in which the U.S. dollar is expected to lose value in relation to the euro.

In these circumstances, a forex investor would sell dollars and purchase euros. If the euro gets stronger, the buying power to purchase dollars has now enlarged. The savvy investor can now purchase back more dollars than they had started with, earning dividends.
The foreign exchange market is a worldwide decentralized market that decides the relative values of diverse currencies. Different from other markets, there is no unified location or exchange where dealings are taking place. Conversely, these transactions are directed by numerous market participants in a variety of places. It is unusual that any two currencies will be the same as one another in value, and it's also quite uncommon that any two currencies will hold onto the same relative worth for more than a small period of time. In the forex market, the exchange rate between two currencies continually fluctuates creating countless opportunities to benefit financially.

What is the reason EXCHANGE RATES continually fluctuate?

Currencies are no different from other tradable products and entities such as Stocks, Bonds and cars which are traded on the open market.

A currency's value changes as its supply and demand change, much like anything else.
A rise in supply or a reduction in demand for a currency can make the worth of that currency to go down. On the other hand, a reduction in the supply or a rise in demand for a currency can make the worth of that currency to go up.

One of the main advantages of forex investment is that you can purchase or sell any currency pair, whenever is most convenient for you, notwithstanding available liquidity. So if you believe the Eurozone is about to fall apart, you can sell the euro and purchase the Japanese Yen (sell EUR/JPY). If you believe the value of Oil will rise, based on a variety of fundamental analysis, you can purchase the Canadian dollar and sell the U.S. dollar (buy CAD/USD). What this means in other words is that the terms “Bear” or “Bull” market are not real. In reality, you can earn profits any time the market is trending up or down.

For more information on how to trade stocks on the global markets please visit our Education Center.