Thursday, November 10, 2011

Forex Explained: What It Is And How It Operates

Foreign exchange or forex pertains to markets wherein the traders buy and sell currencies from around the world. Instead of goods, stocks, and other equities, investors try to get hold of the currencies which are likely to rise in value after considering various factors.

For big multinational companies, the forex market offers a distinct advantage. It allows them to convert their dollars into the currency of a nation where they want to do business in. Through large-scale trading, they are able to get enough money to purchase raw materials, pay for labor, and do other transactions locally.

Speculation also exists here the same way that it does within the stock markets. Some traders use their leverage to influence the market by selling off considerable amounts of a currency and buying another to create artificial value fluctuation that they can capitalize on. Once their desired effects have transpired, they can move quickly to buy back the former currency which now has a much lower value.


While most equity markets are distributed in major cities around the world, forex is operated on a global scale with no central base to speak of, and as a side effect, it is up 24 hours a day with very few closures to accommodate the continuous need for transactions of this nature.