You have probably asked yourself, at some point: what does Forex mean?
In fact, this word abbreviates the name of a big trading market:
The foreign exchange market.
Yes, the Forex market is just like any other market.
If you trade on the New York Stock Exchange, you trade stocks…
If you trade on Commodities, you trade raw materials…
If you trade Forex, you trade…
The word exchange refers to the currency exchange, and as currencies come from all over the world, this market is defined as “foreign”.
So the basic activity of this market is the exchange of currencies.
Because you’re not buying anything physical, this kind of trading can be confusing to understand.
Therefore, think of buying a currency as buying a share in a particular country, kind of like buying stocks of a company.
When you buy, say, the British Pound, you are basically buying a “share” in the British economy. You are betting that the British economy is doing well, and will even get better as time goes.
Once you sell those “shares” back to the market, hopefully, you will end up with a profit.
In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country’s economy, compared to other countries’ economies.
A bit of history…
It was in the ‘70s that the foreign exchange market was gradually developed, when states started switching from the exchange rate regime to floating exchange rates.
At first, it was difficult to determine fair exchange rates, but advancements in technology and communication eventually made things easier.
During the ‘90s, thanks to computers and the booming growth of the Internet, banks began creating their own trading platforms.
These platforms were designed to stream live quotes to their clients so that they could instantly execute trades themselves.
And after that, smart business-minded marketing people introduced internet-based trading platforms for individual traders.
Known as “retail Forex brokers”, these entities made it easy for individuals to trade by allowing smaller trade sizes.
This is how it is now possible to become a full-time Forex trader, at home, just with a computer!