What is Forex?

Now that you have considers trading the Forex markets, it might be a good idea to know what it is you are trading.

The word Forex is short for Foreign Exchange.

Known as the Forex market, FX, and Currency markets, what you are trading is the exchange rate between 2 currencies. Let’s look at an example of this. Let’s say you are traveling from the US to Canada. While at the airport you decide to change your 100 US dollars to Canadian dollars. In return for your US dollars you receive 100 Canadian dollars (this conveniently occurred when the two currencies are even). You tour Canada and finally it’s time to go back to the US. You forgot that you had the 100 Cad in your pocket as your Canadian host was generous enough to pay your way. While at the airport you exchange your 100 Canadian dollars back to Us dollars, but because the exchange rate has changed while you were away, you now get 101 US dollars back. You made $1 by selling one currency (US dollars) and buying another (CAD dollars), holding on to it as the exchange rate changed, and then buying back your US dollars.

You’re a currency trader and didn’t even know it!

Buying and selling currencies and waiting for the exchange rates to change between the two is how we make money in the Forex markets. The amount of change is small, we wait for 100ths of a cent change, but this is enough to make big money in the markets.

We use leverage to magnify these small changes and we use chart analysis (generally) to determine when to buy or sell. These market changes happen every second. There is always movement in the markets and there is always an opportunity to make money.

We can choose from a list of currencies we want to compare, we call these “Currency Pairs”. We can trade the US Dollar against the Great Britain Pound, we would then be trading the USD/GBP. We will get into the details of this in a future post, but for know you have a very good idea what the Forex markets are all about.

Best regards
Russ