The FOREX trading market is the biggest in volume financial market, according to the 2019 Triennial Central Bank Survey. But first things first. What does FOREX stand for, and what is it?
The term FOREX was derived from the FOReign EXchange, which essentially means the buying and selling of different currencies. This can sound a bit weird if you are not familiar with how it works. However, if you ever traveled to a country that uses a different currency than yours, you have participated in foreign exchange yourself.
Let’s see how it works at an individual level first. Assuming that you live in Cyprus and thus use the euro, if you travel to the USA, you will have to exchange your euros for dollars. In essence, this exchange means that according to that day’s rate, you will give 1 Euro for x Dollars. Right now (the moment this article is being written) the exchange of EUR to USD is 1 EUR = 1.02 USD. Therefore, by giving 1 euro, you get 1.02 dollars in return.
You might be wondering, how can one benefit from the FOREX market, other than exchanging currencies when they travel? Actually, you can use the FOREX market to make a profit. In order to do that, you have to first pick an exchange pair (i.e., EUR to USD, etc.), then, keep an eye out for the market trends, and try to sell and buy in order to make a profit.
Let’s see an example of how you can do that. If you have 150 euros, and you pick the EUR to USD market, then you might decide to wait for a change in the rate to make the best use of your 150 euros. Let’s assume for the sake of this example that the rate on the day you exchange your currency is 1 EUR = 1.09 USD. This means that you have now 163.5 USD. If you wait for the exchange rate to change again, and decide to trade back to euros, let’s say when 1 EUR = 1.02 USD/1 USD = 0.98 EUR, the rate today), then you would get back a total of 160,92 euros. This is a simple example of how, just by waiting on a currency and exchanging it at a different point in time, you made a profit of 10,92 euros.
Even though this seems easy and straightforward, the market is controlled by the forces of demand and supply of currency trading. Therefore, every trade can go both ways. Therefore it’s helpful to learn about FOREX before you begin investing yourself.