Financial Dictionary -> Investing -> FOREX

The foreign exchange market or FOREX as it's commonly known is the process by which one country's currency is exchanged for another in hope that the exchange rate is better than when it was first exchanged. Due to fluctuations in exchange rates (the amount one currency can purchase of another), if you bought $10 with 5 Pounds this week, and next week you exchanged the $10 and it made 5.50 Pounds you would have made a profit. This is the thought process behind FOREX and to be successful extremely close monitoring of world exchange rates have to be done. It is usually only profitable if done with large sums of money in to the thousands.

FOREX is not only done by individuals but daily by large and central banks, corporations, governments, big companies and other institutions looking to profit on the money market, making it the largest and most liquid financial market in the world. The last reported average daily volume traded on the FOREX was over 4 Trillion US Dollar equivalent.

Some of the main benefits of trading in the FOREX over other markets is that the market is open 24 hours a day, as fluctuations also happen daily and the market is volatile meaning quick and high profits for those educated enough to spot an opportunity.

The internet has really changed Forex trading, with real time data and brokers that allow trading at the click of a button. Some software can even be put on autopilot to analyze the market for opportunities and make trades for you.

Despite all of this the Foreign Exchange Market is very risky for rookies due to its volatility and it is believed almost 80% of the market is based on speculation with the majority of institutions never making the final trade back.