Many of you have heard of the stock market, and trading stocks and bonds, but there is another kind of trading that goes on that is less well known. Forex Trading, short for Foreign Exchange Trading is when people trade currencies from different countries against each other in order to make a profit. Orders for a Forex trade are placed through a broker, but unlike stocks or futures, there is no actual exchange location; everything is done over the phone or via an electronic network.
The turnover in the world's currencies stems for 2 sources: foreign trade and speculation of a profit. Foreign trade is when companies buy and sell products in another country, then process and convert profits from these foreign sales into domestic currency. Trading is done in currency pairs, i.e. USD/JPY or USD/EUR. There are 7 "Majors" which are considered the biggest and most liquid currencies; the US Dollar, the Japanese Yen, the Euro, the Swiss Franc, the British Pound, the Australian Dollar, and the Canadian Dollar. Forex is considered a true 24 hour market. It can be traded at any time on any day without the inconvenience of waiting until the market "opens" as you would with stocks.
To help you understand why this market is so big, we can take a closer look at how it's used. When a US company buys something from a company in another country, such as Mexico, the US company is either going to have to pay in Mexican Pesos or US Dollars depending on their contract. If the US company pays in US Dollars, the Mexican company will have to exchange the USD into Mexican Pesos in order to claim a profit, and that is where the Forex market comes into play. Since there is trillions of dollars in foreign trade happening every single day, we can see why this market is so important.
Trading on the Forex market can be quite profitable. It's a good idea to educate yourself on the ins and outs of trading on this type of market before you make your first "trade". The good news is that this market is considered to be "perfect" since the price of currency is solely based on supply and demand and therefore free of outside control to manipulate the market. This is a very appealing aspect to people who do not trust the stock market or fear "insider trading" which can corrupt the market for those not privy to information. It's best to read up on how this particular market works, and get tips and advice from experts so you can be confident in your ability to succeed at Forex trading.