The term ‘Forex’ is an acronym that is short for ‘Foreign Exchange’. It involves trading; buying and selling currencies and other assets through an international channel. Although there is a plethora of assets thatcould be purchased and sold via Forex trading, it is worth noting that the most important is currency. This aspect is basically what we’re going to be discussing. Currency trading basically means trading a country’s medium of exchange with that of another and it is done for a wide variety of reasons; mainly for conducting business abroad and in order to have some money to spend when travelling on holiday and relaxation trips. Currency trading could be very tricky and involves quite a great deal of work. It mainly deals with keeping tabs on the market to find out the new trends and the best currencies to purchase and making deals on time, as these trends come and go very quickly and are characterized by a high degree of dynamism.

As a result f the global nature of business and commerce, it has become increasingly necessary to conduct transactions with other countries, mainly for business expansion and profit maximization purposes. As the values of currencies vary greatly (hence, giving birth to exchange rates), companies have been known to invest in Forex trading strategies in order to have more money for any of their needs that may arise. Usually, Forex trading is a service that is carried out by commercial banks and other financial institutions on behalf of their clients. However, in recent times, individuals have been known to take up the responsibility all by themselves and through the internet, they have found avenues to conduct Forex trading transactions of their own. There are two main aspects under which Forex trading has been widely operated.

Forex as a Hedge

Business corporations who conduct their commercial activities in beyond the borders of their originating country run the risk of operating at losses, as currency exchange rates are highly susceptible to seasonal fluctuations and this might affect their purchase of business goods and human resources from other countries. Seeing this, the foreign market has devised a way to mitigate this risk by fixing a permanent rate at which specific business transactions will be concluded over a stated time period. In order to reach certain objectives, a trader can choose to either purchase or sell currencies ahead of time or swap markets completely. During this time period, the bank will begin locking on trades; thereby giving the trader privy knowledge about what the exchange rate figures will stand at the time of those trades. By doing this, traders will be able to reduce their chances of operating at losses. Depending on the magnitude of the trade and the currencies being swapped, the futures market can to some extent offer a feasible and practical means to hedge a currency risk. The futures market is regulated in a centralized exchange and the assets here are less in the form of monetary terms, as opposed to the forward markets which are decentralized and whose existence are restricted to the interbank syatem all around the world.

Forex as a Speculation

Due to the changes in currency values and exchange rates through the world as a result of varying levels of demand and supply in different countries (including loan interest rates, tourism revenues, Gross Domestic Product, political and social unrest and others),, an avenue has been created where individuals and firms can predict the values of various currencies at various times in the future and go ahead to buy and sell currencies against each other with the mere hope that their choices will be right and exchange rates will be favorable to them, i.e, a bought currency gains more value and a recently disposed currency reduces in strength against its counterparts.

Forex trading is serious and takes great professionalism and care. For beginners, we advise that you seek counsel and adequate representation before going into such a venture. For help in choosing who to go with, you are welcome to check our list of the top 10 forex brokers in the world.