Forex, Foreign Exchange or FX: What exactly is it and how does it work?

Forex, Foreign Exchange or FX: What exactly is it and how does it work?

Knowing how to make the best profits in a foreign exchange market may sound difficult, but it’s not impossible. The financial space covered by the Forex turns out to be the largest and most used in the world today, especially because of the amount of dollars that are kept moving daily in this system. That is the main reason why more and more users want to be part of this market.

The doubt arises when many of the interested people do not understand what this market consists of, and that is why we will explain in greater detail what all the functioning of this trading of currencies or FX consists of.

What exactly is Forex?
hen we talk about Forex, we immediately mention the acronym “foreign exchange market”. This financial exchange is the largest on the planet and it comes in a decentralized way to be able to buy and sell currencies in an easier and more efficient way.

If there is one thing that greatly benefits this system, it is the economy of companies and private investors who want to convert their currencies into others. Practically, currency trading is an economic exchange that benefits anyone who wants a quick conversion of currencies. Understanding exactly what Forex is, it’s time to move on.

How does currency trading work?

Some people who are not experts on the subject are often frightened when trying to analyze the workings of Forex, but it is not very complex to understand if it is detailed in the right way.

Before giving concise examples of how it works, it is important to mention these basic aspects to better analyze Forex

⦁ You can invest in this market 24 hours a day
⦁ Operates uninterrupted 5 days a week
⦁ Being an international market, investors from all over the world from different time zones participate.
⦁ The exchange of currencies by country is always done simultaneously.

This last aspect is similar to the one handled in large banks, as it arises as a protection from all the fluctuations that may arise in the different currencies around the world.

All exchange variations that are made in Forex are handled as currency pairs, because what is expressed in the quotation of the pair is practically the value of one currency in comparison to another.
What we call a currency pair in this market is practically that quotation structure that is visualized in something similar to this: USD/EUR, GBP/USD, etc., so it is easy to locate them when we start handling this financial exchange. Let’s use examples to make it even easier to understand how it works

If we see the USD/EUR pair trading at around 1.2430 euros, then we understand that to buy 1 dollar you need 1.2430 euros, or that we can also buy 1 euro for 0.804 euros. It can also happen that we think about the possibility of an increase or a decrease in the currencies. For example, if we think that the euro is going to increase, then we can start selling them and buy dollars in exchange.

And in the event that they fall, you can sell the euros and as soon as their price falls, we buy other euros but cheaper. In this case we can sell at least 10,000 euros, even if you don’t have them, and every time the pip goes down you would get a dollar as a profit. Of course, sometimes the variations between the increases and the decreases of the currencies are very small, of thousandths and they may seem imperceptible, but they do affect the market slightly.

These transactions are always handled under the same structure, that is to say, when buying one currency you are selling another simultaneously and vice versa, that is why this market practically never rests.

What if I don’t have that kind of money?

If we take as a guide the previous example, where at least we would need 10,000 euros to sell them (without having them), but in the long term we still don’t obtain them, we can turn to another option in the functioning of Forex: leverage.

Some brokers allow to open accounts without needing to invest so much amount, on the contrary, they allow a lower amount and the difference would become a loan with the user. For example, if we need at least 15,000 euros to invest, and the broker allows to open the account from 5,000 euros, then we can invest only those 5,000 euros and the remaining 10,000 not lent by the broker, and in this case we could say that we have a leverage of 5 to 1, for example, where each pip equals one dollar. For example Broker Polo Invest

Of course, the number of brokers in the market is extensive and the variety in leverage is also, so everything will be on our side to decide the best option to manage in the trading of currencies.

In this way, it is clear that in Forex it is very difficult to lose out, because due to its constant movement, profits are always the most feasible result for all clients, as long as you know correctly how to invest and manage with the different brokers in the market, something that can be easily learned without the need to be an expert economist.

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