Description: What is Forex? It is the exchange of a currency to another; as the currency values are fluctuating, it allows traders to earn profit from the price difference
What is Forex: Definition and Significance in the Economy
The term Forex must be familiar with you, right? But, what is Forex actually? Literally, forex stands for foreign exchange. It is simply a global market, where exchanges of currency happen. Imagine when you travel to another country. You will need to exchange the currency of your country into the currency of the destination. You can do it at a currency exchange booth at the airport. Actually, you are participating in the forex market when doing this.
What is Forex and How Does Forex Market Work?
What is Forex? It is the process of exchanging a currency to another for a specific reason. The most common reasons are tourism, commerce, and trading. Forex is the largest market in the world, with average trading volume more than $5.1 trillion a day. The forex market opens 24 hours a day, and 5 days a week. Different time zones in the world allow the market to open 24 hours a day.
Values of the currency are fluctuating depending upon many factors. They include macro-economic situations and global trade. For instance, when there is a social riot in a country, the exchange rate of the country will usually decrease. This may discourage investors to invest their money in the country. On the other hand, increase in the exchange rates may happen when the economic growth is positive.
What Is Forex and Its Significance
As the exchange rates are fluctuating, people can earn profits from the difference in the purchase and sale values. This is what most forex traders expect. They intentionally trade the currency to earn profits from the price difference. They buy a certain currency when the price is down and sell it when the price is up.
Forex plays crucial roles in the global market. Forex may help in hedging against international currency and minimize the interest rate risk. Market participants also use it to diversify investment portfolios and even to speculate on geopolitical affairs.