Forex Training For Beginners

What is Forex and How Does It Work?

So what exactly is FOREX?

FOREX is bit different from other captive markets, FOREX full form is FOREIGN EXCHANGE.

Its relative value of one currency versus another, to explain in heavenly simple language it’s always top-notch to go with a case study.

Let’s talk about a case of study of vacation to elaborate FOREX in simple terms,

Let’s imagine that you stay in United States and planning to go for a vacation to Switzerland, that means you have to convert your spending money right? That means you will be converting US dollars to Switzerland Franc (CHF)

That is USD / CHF; this is what we call as Currency Pair in FOREX language. This indicates US dollar compare to Franc.

So now let’s see what the exchange rate of dollar to franc is, let’s say for example it is 1.2049 so that means it costs 1.2049 francs to buy a dollar. So for your vacation let’s think that you would like to spend $500 so that’s going to give us 602 francs as per the above mentioned exchange rate. So with this we have done our first foreign exchange, you have exchanged your domestic currency to a different foreign currency. This completes one half of foreign exchange transaction.

Now let’s assume that you are planning to go back to US from Switzerland as you completed your vacation and you didn’t spend the exchanged money of 602 francs and you collected have that amount in your wallet and now we you need to exchange that amount to dollars, this time let’s assume that currency exchange rate is 1.1000. If you compare between previous exchange rate and the second rate actually the rate has been dropped but in this case it works in your favor.

That is because in earlier case you require 1.2049 francs to buy a dollar but now only 1.1000 francs are enough. That means if you have exchanged 602 francs in return you receive $547 which actually left you with profit, that’s the great news right!!! So what actually happened here was your initial exchanged amount acted as your asset and appreciated the value and resulted in profit.

Well this may not be true in all the cases, you may also receive less than your actual amount due to depreciation and may leave you in loss, and this is all about FOREX and how it works.

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