The term ‘FOREX’ cannot be foreign to anyone; however, while most people have heard about trading on this platform, there are people who continuously ask how FOREX work exactly. In this short guide, you will understand the fundamentals of FOREX and why you should trade on the FOREX market.
What is FOREX?
FOREX means Foreign Exchange, and it is the process by which a currency is exchanged for another. Foreign exchange happens when the dollar ($) is exchanged for the pounds (£) or vice versa; or when the Naira(₦) is exchanged for the Yen(¥). Basically, when any national currency is exchanged for another national currency, a Foreign Exchange occurs.
Why Do People Trade Forex?
Trade, commerce, and tourism are part of the reasons people exchange currencies. If you are an American staying in the U.S., you can only spend the dollar ($). The dollar ($) is valuable in the U.S. but cannot be used to buy goods in China. The Yen (¥) is valuable in China; therefore, if you want to purchase goods from China, you have to pay the Chinese merchant in Yen (¥); hence, you must exchange your dollars for the equivalent Yen price.
How Can I Make Money on FOREX?
It is relatively simple. FOREX works on a principle of demand and supply (demand and supply are usually determined by other factors like interest rates, political stability—but this is a topic for another time). Let’s say you buy £1000 (a thousand Pounds) for $1250 (a thousand five hundred dollars). A week later, the value of the Pounds (£) increases against the dollar ($) and becomes £1000 for $1600. If you sell your Euro, you will make a profit of $350.
It is simple mathematics, you buy a currency, predicting that the currency will increase in value over your local currency (or another currency); if it does, you will sell the currency you bought and keep the profit.
Is FOREX Simple?
No. No investment type or business is easy; however, you can make a lot of money trading FOREX—if you can learn your way around it. If you are new to it, you should only invest money you are willing to lose. With time and dedication to learn, assuredly, you can become a top earner.
Reasons Why You Should Trade on the FOREX Market
- The Market is the Most Liquid Market Anyone Can Trade
Liquidity, in simple terms, means availability of cash. When you trade in FOREX, you can easily buy or sell a currency because there will always be people willing to trade. The FOREX market is so big that an average of $5 trillion is exchanged in a single day. The FOREX market is the largest financial market in the globe, and millions of people trade on it every day. When you invest in FOREX, your money is secured (of course, in terms of its liquidity).
- The FOREX Market cannot be Manipulated for too Long.
The Foreign Exchange market is leviathan—so leviathan that, unlike other financial markets, it cannot be manipulated for too long. Since the market cannot be controlled, you can trade securely with the knowledge that no entity can unfairly influence the market.
The Foreign Exchange market is thrilling, and if you must trade in a financial market, it remains one of the best options, especially for beginners. Are you thinking about investing in FOREX? Begin the journey to financial security, financial knowledge, and wealth.