The word Forex is an abbreviation for “FOReign EXchange” which in essence refers to the currency market. Everyone has at some point in their lives, undoubtedly made a Forex operation. When you go on vacation to the U.S., you exchange your Euros for Dollars in an exchange bureau. By doing so, you have made a Forex transaction!
From a trading perspective, you will do exactly the same via the trading platform of your chosen broker. The goal is then to buy and sell currencies during a relatively short period of time and profit from the variation of their rates.
Here is a simple example:
Today, the price of the Euro against the Dollar is 1,42
If you have 1.000 Euro today, the worth of your Euros will be 1.000 x 1,42 = $ 1.420
Tomorrow, the price of the Euro against the Dollar is 1,43
Your 1.000 Euro worth will then be 1.000 x 1,43 = $ 1.430
You have just taken advantage of the rise of the Euro against the Dollar to make a profit of :
$ 1,430 - $ 1,420 = $ 10
As we have just done for the Euro against the Dollar, you can hypothesize other currency pairs like the Euro against the Pound, the Dollar against the Yen, and many more…
In the world of Forex, each currency is represented by a 3-letter code:
The rate for the Euro / Dollars will be symbolized on your platform by the following code EUR / USD.