The Foreign Exchange Concept - What is Forex?

Do you still remember the last time you check your holiday destination’s currency value? You worked so hard for the whole year, saving up for the fabulous trip. Two months before your flight day, you start monitoring the dollar value…both your own country as well as the holiday spot you’re planning to visit. Does this sound familiar?

What this means is…you want your own currency value to be high and dollar value of the country you’re visiting to be low. Let’s just say you live in the United States and you’re planning to make a trip to say….Australia for example. You would hope that the US dollars (USD) go up and the Australian currency (AUD) to drop. This way, for every dollar you exchange through either your bank or other authorized Foreign Exchange networks. You will get more buying power because your dollars are now worth more in Australia.

This is basically the whole Forex concept and how traders and Forex Broker are making money through FX. They buy foreign currencies at low price and sell it for a profit margin. The key to trading in the Forex Market is by monitoring the global money exchange rates and look for marginal gaps where you can invest your shares. Normally, there will be a waiting period before you will see some differences.

Let’s assume that you live in Country A, and you’re planning to invest your money into the currency of Country B. For every $1 you exchange, you get $2.50 in the foreign rate. You would want to wait for that rate to rise until $3 before you sell the foreign currency. If you invested say $100,000 into Country B, you will get $250,000 back. If the rate rises up to $3, you will be making $50,000 through the margin.