What is Forex?
What is Forex?
The term Forex refers to the foreign exchange currency market. Forex is similar in concept to the stock market, but with the key difference being that we exchange currency from different countries, instead of partial ownership of companies. Another way to visualize the concept is thinking about going on vacation!
When you go on vacation to another country, you trade a sum of your own currency for a sum of the other country's currency. For example, to make it easy, let's say you are going to a country where their currency costs $1.50 for every $1.00 in your currency.
In this example, if you buy 1,000 units of their currency, it would cost you $1,500. Then, while you were on vacation, a huge economic tragedy hits their country, causing the currency exchange rate to fall from 1.50 to 1.00 per unit. If you didn't spend any money on your trip, and went home with your 1,000 units of their currency, you would only get $1,000 of your money back from the exchange, meaning you lost $500 just because the economy went sour!
The currency rate is always moving, so the moment your money changes hands, you are either gaining or losing equity, or economic value. A turn like the one above is extremely unlikely, but it is normal to see a variation of a few cents to a few dollars on an average vacation fund over the course of a week.
The basic concept of Forex is buying and selling pairs of other countries currencies, with the anticipation that the one you are betting on will go up or down. The currency listed first is the one you are "betting on." For example, if you place a sell position on the AUD/USD, you are anticipating that the AUD will fall against the USD. If you place a buy position on the JPY/USD, you are anticipating that the JPY will rise against the USD. We will go over the way we determine when to place a sell vs a buy position in the lesson where we talk about actually making trades, so don't worry if you're still a little lost!