Forex is simply an acronym for "Foreign Exchange".
Forex trading is all about the exchange of one countries currency for another. In order words it involves simultaneously buying one currency and selling another.
Lets be more practical here, assuming you wanted to travel to the U.S and you had say N150,000 Naira That you wanted to convert to dollars, if the exchange rate was 150 naira per dollar at the, it then means you will be able to exchange it for $1,000 dollars.
Now assuming the the value of the Naira weakened against the dollar, and the exchange rate was now, N160 Naira per dollar, it means if you decided to convert your dollars back to Naira, you would now have
160 * 1,000 = N160,000 Naira, your profit will now be equal to 160,000 - 150,000 = N10,000 Naira
Your profit will be equal to N10,000 Naira
This is just a very simple analogy of how the Forex market works.
The forex market has a daily turnover of over 1.5 trillion U.S dollars which far supersedes the returns from any other market. the market is open 24 hours a day and 5 days a week.
Forex market is moved mainly by large bodies like the central bank, commercial banks hedged funds etc.
One of the most fascinating things about this market is that it has no physical headquarters like the stock market has Nasdaq in U.K and NYSE in Newyork.
So how then is it traded you may ask? well The forex market is an "Over The Counter" market "OTC" and is therefore traded electronically.
Before now,only people with really deep pockets could trade the forex market because it required capital usually running into millions of dollars, but the advent of the internet changed all that for good as commercial forex brokers started springing up and they started making use leverage which enables us to control as much 500:1 of your trading capital.
Leverage is one of the best things that ever happened to the forex market as you can now open a forex account with as little as $100 dollars or even less. but bear in mind that leverage is a double edge sword as it could either make or break your forex account.
word of advice... trade with sufficient funds in your account to avoid over leverging your account and also Try not to trade with money you cannot afford to loose, because you stand the risk of loosing some or even all of your funds if your money is not managed properly.
For retail traders like us, we trade forex through a forex broker. Forex brokers serve as a Go-Between between us and the forex market.
The very first step towards getting started in forex trading is getting good forex education. a very good place to start would be Babypips.com
Thanks for reading this far, i really do hope you enjoyed this article.
Your Trading Friend
Olayemi Alabi
