What Is Forex (and Why Is It so Popular)?

If you are wondering, "What is forex?" the first thing to understand is that it is the short term used for "foreign exchange." Basically, forex involves accurately calculating the rate fluctuations of various national currencies, specifically the major ones like the US dollar, euro, British pound, Swiss franc and Japanese yen. A person who is into forex trading earns money by buying and selling foreign currencies. Here are the biggest reasons forex is a popular trading platform.

Quick Way to Make Money

The foreign exchange market is estimated to have a daily turnover exceeding $1 trillion. This means that currencies are traded and change hands not by the hour but by the second. With the Internet, transactions are done very quickly, no matter where a trader is located in the world. It is possible for you to buy currencies in the morning, sell them at a profit by day’s end and have your money wired to your account on the same day. For this very reason, a foreign currency trader is also called a day trader.

This is not to say that forex traders always profit at the end of each trading day. To win in this kind of business, one must have ample training and experience. The moneymaking potential exists, but there are also big risks involved.

Entering and Exiting the Market Is Easy

The entry or exit barriers in the foreign exchange market are insignificant compared to those in other types of markets. One can easily trade big amounts of currencies without necessarily having the same amount of money on hand. This is called leverage. Many people have entered the market with as little as $200. Also, the forex market is open for business 24 hours a day. If the trading day in the US is over, you can easily find markets in other time zones from around the world. The best part is that this market can never be forced to declare a holiday or close down.

Liquidity Is the Essence of What Forex Is

The foreign currency market is known for its high liquidity. This simply means that all transactions are spot or carried out in cash. If you earned profit, you get your cash immediately. If you have losses, your bank account will be deducted by the corresponding amount almost instantly.

Forex Is the Biggest Market in the World

The forex market has a worldwide presence. This means that you can trade with other investors and do business 24 hours a day. Specialized trading software can execute transactions even while you sleep. Also, due to the size of the market, a profit margin of less than 1 percent can already mean big money. All these factors can make earning big profits much more attainable.

Forex Market Provides More Leverage

A foreign currency market trader enjoys higher leverage because currencies are traded in lots. When you are dealing in forex, your $1,000 can allow you to enter the market with, say, $10,000. Therefore, you can trade with an amount that is several times bigger than the money you have invested. On the downside, if you suffer losses, you will also pay more than the amount that you have originally put in.

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