Foreign currency exchange is a naturally occurring process in the world’s economy. As entities from different countries exchange goods and services, currency gets traded in the process. As an example, if a company in the US buys goods and supplies in France, they will pay for those items in Euros, rather than US dollars. The same is true in the case of a French entity buying from a company United States; the transaction will be in USD.
The commercial movement of currencies, along with other economic factors, like interest rates and government policies, play a role in contributing to the present value of a country’s currency. Currency values could either go up or down depending on those factors. Because of those movements in valuation, foreign exchange or Forex presents a good opportunity for investors to capitalize on the ever-changing volatility.
Trading in forex is simply buying other currencies using a ‘base’ currency. Trading is usually done in pairs, like US dollar and Euros. One can buy currency that is expected to go up in value over against another currency, and profit from it when it achieves these values.
Forex trading is an enormous market. In 2012, it was estimated that the market averaged around US $ 4.9 trillion per day. However, unlike the NYSE or CBT, there is no real, physical market for this and trading is done electronically.
Forex trading goes on 24 hours every day at the major financial centers of the world –New York in the USA, Zurich in Switzerland, London in England, Tokyo in Japan, Frankfurt in Germany, Hong Kong, Singapore, Paris in France, and Sydney, Australia. It is essentially nonstop.
All electronic trading is transacted through foreign exchange brokers. The Forex broker monitors all the major financial centers, orders, and transaction details for its clients on potential trades and trading results. Some have programs for affiliates as well. With such a huge market involved, and the potential for enormous profits to be made, it is not surprising that Forex brokers and affiliates have grown in number.
Given the underlying volatility in foreign markets and the influx of new brokers, some of whom who are more trustworthy than others, one should exercise caution when choosing to participate in Forex trading.