Around us, there are still many people who don't know what forex is. This is a crowed market but still strange to a part of the world at all. I got an idea of other friend who want us to define "What is forex?" in two sentence. We may have various knowledge about this, just make it known as simply as possible.
Well, if you’ve ever travelled to another country, the chances are you have visited a currency exchange booth and exchanged your money into the currency of the country you were visiting. In this case, it’s very likely that you noticed a screen displaying different exchange rates for different currencies. This is known as currency trading or forex trading.
I will assume you made it to the counter and exchanged $500 for Japanese Yen. That’s 50,000 Yen! Bet you thought you were rich…
When you exchanged your money, you essentially participated in the Forex market! You’ve exchanged currencies. Or in Forex trading terms, by trading the USD/JPY currency pair you’ve sold Dollars and bought Yen. Then on your way back home, you stopped by the currency exchange booth again to exchange 500 Yen that you somehow had leftover (Japan is expensive!) and you noticed the exchange rates had changed whilst you were away.
So, why trade forex? Taking the example above – the currency exchange booth gave you $6 rather than $5 and you could now afford the super delicious sushi from the van man along the road! Well, it’s these changes in currency pairs exchange rates that help traders to make money in the foreign exchange market.
Now, let’s think about this on a bigger scale. Forget sushi and think of $2,000,000 software instead. A large international company may need to pay for new software in a different currency. The exchange rate fluctuates continuously so these few pennies (or pip value in forex jargon) here and there add up very quickly.
This means that your losses can end up being huge, but it also means your profits can be huge.
This is the main reason why individual traders and organizations are engaged in Foreign Exchange trading. Some entities need to hedge their exposure to a certain currency while others speculate that the value of one currency will appreciate or depreciate against the counter currency. In other words, traders and market participants are trying to predict currency pairs’ price movements and use these minor changes in currency prices to make significant profits.
