What’s forex? This is a difficult question. There are so many sites and TV advertisements that mention forex nowadays. You almost certainly know it’s a way you can make money, but what exactly does it involve?

The word foreign exchange is short for FOReign EXchange. You will see it shortened even further to FX or 4X. It involves exchanging different currencies in the expectation of making a profit when the currency rates change. Say you were planning to go overseas. Let’s say you are an American and you are planning a visit to Europe. The currency of most states in Europe is the euro, so you would like to exchange USD from your bank for euros so you would have some cash to spend while you are there. You may buy $500 worth of EUR two weeks before your trip.

But then, something comes up at the last moment and you can’t go to Europe after all. So you change the cash back into dollars and put it back in your bank. Now, in the two weeks you had those EUR, the value of the euro against the dollar will have changed at least a little bit. Generally it does not change a heap and due to the bank’s commission, you would find you get back less than your original $500. Then you would have made a decent profit from foreign exchange. However, folk who start forex trading do not do it by purchasing foreign currency bills from their bank. You do not ever have the currency delivered, you just purchase or sell according to whether you suspect the price will go up or go down, and then trade back out when you have either a major profit or a loss.

Obviously, this is a dangerous business, but because you can deal in lots that are a hundred, 200 or maybe four hundred times your own balance, it has the potential to make you a lot of money. This is what draws the majority to forex trading, and why understanding what is forex can be handy in the modern world..