What Is FOREX?

Thu, Jun 24, 2010

Investment

FOREX (or FX) stands for foreign exchange, and it is the markets where currencies of all countries are traded against each other. FOREX markets have volume which dwarf any other, including the stock and commodities exchanges. Current estimates are that over $1 trillion changes hands within FOREX markets on a daily basis. Participants arrive in the FOREX markets for a variety of reasons.

Some FOREX players are there to hedge currency risk. Take for example a multinational corporation selling products in many countries abroad. They often do not desire to be subjected to the vagaries of foreign currency movements — when the currency in a country they sell products in declines, that translates to reduced profits. Rather than take the chance that this happens, they use the FOREX market to sell futures in that currency thus hedging their risk. Other players are attracted to the FOREX arena for more speculative reasons — one can make a quick fortune trading FOREX. George Soros is an example of this earning his initial fortune by trading against the British Pound and attaining legendary status by “breaking the Bank of England”.

FOREX can also be used by Americans who think their government is spending too much money — which will cause the eventual decline of the U.S. Dollar. This group can use FOREX to put their wealth in other currencies like the Canadian Dollar, Aussie or Swiss Franc. FOREX is quick moving and it can be quite risky — especially if you do not know what you are doing. Before entering the FOREX game make sure you study up and develop a clear strategy and objectives.

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