What is forex trading?

What is forex trading?

Forex is an abbreviation for Foreign Exchange. That means currency trading. You buy one nation’s currency with the hope that it will increase in its value in future. If it increases you sell it back so that you will get a profit. Let me explain you more clearly. Let’s say you planned a trip to London in two days so you bought the currency pounds for $1000. Lets say you got 600 pounds. But your trip is cancelled so you want to sell the 600 pounds to get your dollars back. But in the mean time because of the currency fluctuations the pound value increased and for 600 pounds you got $1020. That means you made a profit of $20. This is nothing but forex trading which is also called foreing exchange trading. With the advent of internet, you don’t need to go to a broker and tell him to buy or sell a currency. You can do the forex trading on the internet with a click of a button. Moreover if you have $1000 in your account you don’t trade with only $1000 but you can control amounts like $100,000 depending on the leverage the broker is giving. Leverage is a forex term which I will explain you in the later chapters.

Forex is very profitable business but at the same time it is very risky also. Let’s say after your trip is cancelled when you want to change the pounds back to dollars, the pound value decreased because of the curreny fluctuations and for 600 pounds you get $980. That means you get a loss of $20. But forex trders use many methods to predict the movements of the prices. This book won’t cover all those methods but it will give you the basics.