What is FOREX Trading? A Brief Introduction for Beginners

What is FOREX Trading? A Brief Introduction for Beginners

You’ve probably heard the term FOREX floating around either on TV or on the web, but you may not be sure of what this exactly.  Well you’re in good company, because as little as five percent of people know what FOREX and FOREX trading is.  It’s grown in popularity of the past decade as a way to make a substantial living either by working for a firm or working at home on your own.  And believe me when I say that this is far from a get rich scam or scheme, FOREX is as real as the stock market and as viable as well.

Trading is a 2 horse race in which you simply bet on the direction of an instrument.  You don’t actually own any particular instrument, but instead you are simply trading the instruments.  And you can do so in nearly any country that you’d like to do so.  FOREX is simply trading one foreign currency against another.

Here’s how the FOREX market actually works.  As a U.S. citizen, you use the US dollar.  However, let’s say for a moment that you are going to go visit Switzerland where they use the Swiss Franc.  You bring with you $500 worth of USD spending money.  When you arrive at the airport, probably one of the first things that you’re going to do is convert your dollars into Swiss Francs.  So the big question is, what rate do you convert that over?  Unless the exchange rate was 1 then you’re going to have different amount of francs than dollars.  Currently the exchange rate is around 1.2049 francs per US dollar.    This would mean that you are paid 602 francs.

Now at the end of the vacation, it turns out you didn’t use any of your cash, so you need to convert those 602 francs back into dollars, so how much will you get?  Well the exchange rate has probably changed.  We’ll pretend that it dropped to 1.1049 instead of 1.2049- meaning fewer francs to buy a dollar.  That means that we’ll walk away with $547.

Essentially this is what a day trader does- they essentially try and predict the strength of other currencies against varying currencies.    We don’t have time to discuss the reasons why they might think this, but they use special software and mathematical techniques, as well as other factors such as social factors to help determine this.