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What is forex trading? read you might stop looking for a job

Forex (also known as FX) is the short form of foreign exchange, which quite simply refers to the conversion of one currency into another. Forex is the largest financial market in the world – and one of the most volatile.

Forex explained

Forex, or foreign exchange, is the means by which individuals, companies and central banks convert one currency into another. While a lot of foreign exchange is done for practical purposes, the vast majority of currency conversion is undertaken with the aim of earning a profit.

The amount of currency converted everyday – over $5 trillion dollars – makes forex trading the biggest financial market in the world and can make price movements of some currencies extremely volatile. That volatility is part of why forex is so attractive to some traders: bringing about greater chance of high profits, while also increasing the risk.

What is a currency exchange rate?

The currency exchange rate is the rate at which one currency can be exchanged for another. It is quoted in pairs such as GBP/USD (the British pound and the US dollar). A currency exchange rate is either floating – ie changing from day to day – or pegged at a fixed rate. For example, the Qatari riyal is pegged to the US dollar at a fixed exchange rate of $1/3.64 QR.

Why trade forex?

There are many reasons why someone might want or need to participate in the forex market. However, two key activities make up the majority of forex trades.

Buying goods or services abroad

This is the form of forex trading that most people are familiar with. Whenever an individual or a business needs to buy something in a different currency, a forex trade must be made. So for practises like international trade, forex is essential.

While forex trades for practical purposes happen every second of every day, they make up a relatively small proportion of all currency trading.

Speculation

Instead, most forex trades are undertaken with the aim of making money. Traders speculating on forex prices will not plan to take delivery of the currency itself, instead aiming to take advantage of movements in the market.

Major investors can make many large forex trades in a single day, constantly reacting to and anticipating movements in a currency’s price. The relative ease with which currency can be traded makes it a very liquid asset, which is partly why forex can be more volatile than other markets.

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