WHAT IS FOREX?
Forex trading (foreign exchange) is one of the biggest markets that exist in the entire world and it is growing fast.
It is estimated that a daily turnover in forex market is more than US $3 trillion dollars. Forex trading involves trading different currencies for the purpose of making profit.
The most common currencies traded are United States dollar (USD), Euro (EUR), Australian dollar (AUD), Canadian dollar (CAD), Swiss franc (CHF), British Pound (GBP) and Japanese Yen (JPY), although it is possible to trade virtually any currency of any country.
Currencies are traded in pairs as buying one currency requires selling of another.
The prices of different currencies in forex market vary constantly due to many different factors, while most of the currencies are stable in domestic market.
Profit is gained from forex trading by utilizing buy low/sell high technique, but it is important to understand that if you buy one currency and later the price of that currency drops, you won’t be able to sell that currency for the price you bought it, but for lower price.
This is good example how you can lose money with forex.
For example, you decide to invest certain amount of currency (US Dollars) to buy another currency (Euro).
Now all you have to do is wait for Euro price to rise, or Dollar price to drop to a certain point and then sell Euros for Dollars.
The result is that you will have more dollars than your initial investment.
Currency exchange rates in forex market are affected by many different economic and political factors including government's surpluses or deficits, inflation levels, economic prosperity, trade levels, political stability/instability, etc.
There is also one factor that is very important to forex trading called market psychology and it can affect currency prices and increase/decrease demand for certain currency.
For example, if one currency is generally perceived as stronger than the others, the demand for that currency will increase and the price will naturally be affected.
