Forex is the trading of foreign currency which is known as foreign
exchange trading. Forex is acronym of foreign exchange. When a forex trader
trades the currency between different countries against each other is called as
forex trading. It happens automatically while doing any type of trade between
countries. Due to the forex, buying and selling of goods or services occurs
naturally. If you have to go abroad study, you need to know the rate of forex
you are going to study to estimate the total expenses. So for this, you are
required to convert the other country’s currency into your own country. This is
a very simple example to make you familiar with forex.
The foreign exchange, forex is the market for the various
currencies of the world. Since goods and services are exchanged 24 hours a day
all over the world. Such type of transactions are done across national borders
require payments in non-domestic currencies.
For example, a US company purchases widgets from a Mexican
company. To do the transaction, payment should be made in Mexican Pesos that
would require a conversion of Dollars into Pesos to make payment. Similarly,
the payment could be made in Dollars for the exchange of Dollars for Pesos.
This process happens all the time where the forex market comes in existence.
Generally, forex trading is typically done through a market maker
or a broker. Suppose you are a forex trader, you can choose a currency pair
that you expect to change in value and place a trade accordingly.
For example, if you had purchased 1,000 Euros in January 2010, it
would have cost you around $1,500 USD. Throughout 2010 the Euros was worth
$1,600 U.S. dollars. If you had chosen to end your trade at that point, you
would have a $100 gain.
As I have already cleared that forex trades can be placed through
a broker or market maker. Your orders can be placed with just a few clicks and
the broker passes your order along to a partner in the internet bank market to
fill your position. When you close your trade, the broker closes the position
on the intern bank market and credits your account with the loss or gain. This
process happens literally within a few seconds. Thank you.