What Is Forex?

Forex stands for foreign exchange, usually in terms of the Foreign Exchange Market.

The Foreign Exchange Market was created in 1971. International trade was changed from fixed to floating exchange rates, and forex trading became the best way to control currency prices. As a forex broker or day trader conducts their transactions, the market determines the value of the currency of one country over that of another.

Forex trading is very similar to everyday stock markets. Currency rates are changed by political, economical, and psychological factors. Economical factors include unemployment, inflation, interest rates, and others. Governmental stability also influences rates and investor confidence.

Forex Trading Differences

However, forex trading is also unique in many ways. The main difference between forex markets and traditional markets is that much more money is exchanged through forex trading platforms on a daily basis.

While the world securities market averages about 300 billion dollars in exchanges a day, forex averages around 2 to 3 trillion dollars a day. Forex trading is also done over the telephone and on computer terminals in banks worldwide or on any computer with a forex trading platform; there is no physical trading floor. Forex is open 24 hours a day.

FX Trading Concepts

FX Trading Concepts

When engaged in FX trading, it is important to remember that expectations are often more significant than actual changes.

Here’s an example using the American stock market: if a company was preparing to have an earnings forecast right after Christmas, then investors might want to grab a lot of that company’s stock because the price would be expected to rise after the earnings report comes out. Although no concrete evidence exists that the company had positive earnings, investors will speculate.

Forex trading is the same. Investors will trade currency based on the belief that something good or bad is going to happen to a particular country.

A good forex broker or trader will also need discipline and good money management to succeed.

Check out more basic forex trading info by browsing our additional resource pages, or find more general information by browsing our Trading Concepts, main resources or forexFAQ pages.