HOW DOES FOREX WORK

FOREX works very simply. Exchanging foreign currency is the buying of one currency while selling another at the exact same time. It is done in pairs. Four major currency pairs are usually used for investment purposes. They are the Euro against the US dollar, the US dollar against the Japanese yen, the British pound against the US dollar, and the US dollar against the Swiss franc. The way it works is, with the ever changing value of each nations currency constantly changing, one nations currency is never precisely equal to another. FOREX traders use this to turn a profit.


For example, if the 1 Japanese Yen is worth approximately $1.48 U.S. and you believe that the Yen will increase in value in comparison to the U.S. dollar, you would sell your dollar and purchase the Yen. Once the value of the Yen increases, you would sell it back to purchase the U.S. dollar.

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E.X. 1: The Yen is currently valued at $1.48 USD. You sell $14,800 to buy 10,000 Yen. The Yen proceeds to increase in value. After a short amount of time, your Yen is valued at $1.62 USD. You sell your 10,000 and re-purchase the USD. Your initial investment of $14,800 has turned into $16,200, almost a 10% profit.


One thing that makes FOREX so much more exciting is the large amount of margin that is allowed by most brokerages. Margin is a system used in FOREX that allows an individual to increase his purchasing power greatly. An investment on $1000 of your own money will offer you $100,000 worth of purchasing power at a 100:1 ratio that most brokerages offer. This allows you to purchase and sell in much greater amounts than would otherwise be possible.


Source:
WWW.Dailyforex.net

FOREX - the DEFINITION

The foreign exchange market (currency, forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when worldover countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.

Presently, the FX market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008.

The purpose of FX market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, etc., and the need for trading in such currencies.


Source :
http://www.brokersmatrix.com/index.php?pag=forex&act=whatisit