Forex stands for “foreign exchange”, and it refers to the methodical trading of currencies with the aim of making profit by anticipating exchange rate fluctuations.
International transactions take place every second, 24/7. Since each country uses its own currency, foreign trade is conducted each time using a pre-agreed currency, depending on what the parties involved decide upon.
The values of currencies in relation to each other are subject to the ever-changing market forces of supply and demand, just like any other commodity. They are also affected by monetary policies and other geopolitical factors.
Therefore, since the variables affecting a currency’s value against another are constantly changing, we can observe continuous fluctuations in exchange rates. This means that the value of one currency against the other varies due to the shifting pressures of supply and demand (and other factors) for those currencies.
By exchanging currencies at the right time, you are able to take advantage of exchange rate fluctuations to end up with more money that you started with. In other words, by buying currency when its value is low, and selling it when its value is high, you end up making a profit.
For example, let’s say you have 100 US dollars (USD). We assume that right now, the USD/EUR exchange rate is 1 USD = 0.91 EUR. This means that if you use your dollars to buy euros, you’ll end up with 91 EUR, assuming there are no exchange costs and commissions involved. If the euro’s value against the dollar increases by 0.1, this means that the exchange rate will be 1 USD = 0.90 EUR, or the reverse, 1 EUR = 1.11 USD. If you sell your 91 euros for dollars using the new exchange rate, you’ll end up with 101.11 USD, which is 1.11 USD more than your initial amount of 100 USD. In other words, if the currency you hold on to increases in value in relation to another currency, you can make a profit if you exchange those currencies.
Like the stock and commodity markets, forex falls into the category of speculative trading for those who study market trends and can anticipate price fluctuations. Making large volumes of foreign exchange transactions with large amounts can end up generating high profits. This creates the need for centralized forex platforms to keep track of market prices as well as managing the performance of your trading portfolio.
Specialized forex trading platforms make it easy for you to monitor foreign exchange markets and make timely transactions at any given time. With insider news, educational material, market analyses and intuitive data analytics, they provide you with real-time visibility over what transpires in the foreign exchange market to help you make informed decisions and help you minimize your trading risk.