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What’s forex? This is a hard question. There are so many web sites and television adverts that mention currency exchange nowadays. You almost certainly know that it is a way you can earn cash, but what precisely does it involve?
The word foreign exchange is short for FOReign EXchange. You will see it shortened even further to FX or 4X. It involves exchanging different currencies in the hope of earning a return when the currency rates change. Say you were planning to go overseas. Let’s say you are an American and you are planning a trip to Europe. The currency of most nations in Europe is the euro, so you would want to exchange dollars from your bank for EUR so you would have some cash 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. Now, in the two weeks you had those EUR, the value of the euro against the dollar will have changed at least a little . Generally it doesn’t change a lot and due to the bank’s commission, you would find you get back less than your original $500. But if the value of the dollar actually fell during that time, or the EUR rose by a lot, you could end up getting back more than $500. Then you would have made a decent profit from currency exchange.
So when we look at what’s currency exchange as a method to make cash, that is a easy illustration. They are going on the internet and, thru a broker, get involved in speculative trading where you can deal in sums a hundred or even more times bigger than the amount that you have in your broker account. Obviously, this is a dodgy business, but because you can deal in lots that are one hundred, two hundred or maybe four hundred times your own balance, it has the potential to make you a lot of money. This is what attracts most people to foreign exchange trading, and why knowing what is currency exchange can be helpful in today’s world.