The foreign currency exchange market or FOREX is a kind of market that deals with the trading of foreign currency. In simple terms, it is a virtual place where people exchange their foreign currency. It is one of the larges and most popular investment markets in the whole world. Catering to a majority of counties, it is open 24 hours a day, 5 times a week. You can think of it as a large wholesale money exchange market. But it is much more than that. In essence, banks do have their currencies exchanged here based on their necessities. However, it is also a place of opportunities. You can earn more than what you had just by trading currencies – even if you dont really need the currencies that you buy. This is done by taking advantage of inflation and speculation.
It is said that almost 80 to 90% of the transactions and values produced through the foreign currency exchange market are based on speculation. While some people may see this as something bad since money is produced out of thin air, traders take advantage of speculation to produce profits- just by trading at the right time with the right currencies. The motto of FOREX trading is to buy low and sell high. You buy your currency of choice for a low amount (you preferable wait for the time when the currency is at a low value) then you wait for its value to rise – perhaps it will take you a few days, weeks or even hours! When you think the currency value has reached its peak, you then sell your currency. Now you have more than what you have started with – with just the power of patience and intuition. But of course, this market intuition is based on science.
In the past, various market movements are predicted based on economy, politics and psychology. You can basically predict a countrys spending habits by looking at it policies and its overall culture. You can also derive a few assumptions from consumer and trader psychology. Nowadays, however, computers are tapped to compute mathematical indicators of foreign currency exchange. By looking at these indicators, humans and computers can somehow predict short term movements and therefore use this knowledge to derive ways on how to profit in trading. The banks are the main movers in FOREX since they need huge hedge funds to balance their accounts.