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WHAT IS FOREX?


Forex Concept

To understand what Forex is, you first need to deal with currencies and possible operations with them. As everyone is well aware, each country has its own currency. For various reasons, we sometimes go to the exchanger and buy euros, because soon a trip is planned, for example, to the European Football Championship. There is no way to pay in dollars, so you need to take money with you in advance that is in circulation in this territory. Now almost any bank has an exchange office where we are given the opportunity to buy dollars or euros, and sometimes a larger list of currencies. The most prudent citizens are looking for such an exchanger that will give the best rate.

And here everything is logical - why get $ 105 for 93 euro, if you can go a little further and get $ 107 at another exchange point. At first glance, it might seem that the difference is not significant, and perhaps it is, but not for everyone. And if you imagine that this is not 93 euro changing, but all 930 euro, the savings could be $ 20. So we come to the first important thought - we are ready to exchange money for foreign currency, and there are many offers and a reasonable option would be to choose the most profitable one. This is about the same model as in the vegetable market - for one seller, tomatoes cost 10 euro per kilogram, while they are greenish, smell like plastic, while the neighboring seller has much nicer ones and only 8 euro a kilogram. Dollars, although green, but not tomatoes, are of about the same quality, but the price may vary.

So, above we examined the most primitive example of a person’s interaction with the sale or purchase of currency. The general meaning of what Forex is becoming clear is the exchange of foreign money. This is the common name of the entire huge foreign exchange market, which includes such small exchange transactions at the bank's cash desk. And these operations can be called the very first and smallest link in the entire money exchange system.

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Foreign exchange market participants

This was an example of cash payment at Forex, when they gave away dollars and received euros. But in the current age of the digital industry, more and more people are switching to cashless payments, depositing their savings on deposit, and “living” money is taken from the card where the salary comes. When a bank account is opened, usually employees in a rather annoying form also offer to open accounts in euros and dollars, sometimes even for free in addition to the main one. Having such an account, you can easily transfer money from your euro account to a dollar through mobile banking. This is the same mechanism as in the case of the cash register, but only now you don’t even need to go outside - everything was done electronically. Quickly, conveniently, and even the exchange rate in such a situation is often much better than what is offered in the department. The following is another example of what forex is.

Now we know that you can change both cash and non-cash money, you just need to contact a bank or an exchanger. A simple citizen who goes on vacation once a year and sometimes replenishes his foreign currency bank account, is a participant in foreign exchange trading, not even knowing about it. You just need to look at it from the other side - for example, such a person spent on vacation $ 300-500, which he had bought before. If we take the average number of tourists who fly abroad every year and spend dollars there, the total amount will reach to several billion dollars. That is, in fact, this is the annual demand for dollars, which are necessary for recreation, and it is expressed here in such a rather large volume. Now let's try to imagine that a huge number of tourists who want to buy euros also enter our country - no one at the cash desk in a store will accept a dollar for a bottle of mineral water.

As a result, we get a very complex system where there are a huge number of participants with their different interests. And the seasonality factor is also added to it - they fly abroad in the winter, and tourists tend to Switzerland, on the contrary, in the summer. Then you can add all sorts of holidays, sporting events and so on, which simply gives countless factors that affect how actively a currency is bought. But this is all the little things compared to corporate activities and trade relations with other countries. For example, there is a company that deals with metalworking and sells finished materials abroad, receiving payment in euros. By the time you need to file an accounting report and pay taxes, such a company is forced to convert its profit in euros into dollars so that everything is in accordance with the law.

Each country has some kind of export and import, which creates a widespread need to periodically exchange one money for another, all operations are carried out on forex - we sell or buy one money for others.

So, we already have two large groups of Forex participants - ordinary residents who operate with small amounts for practical purposes and legal entities working with foreigners and forced to conduct certain currency transactions. Perhaps many of them do not know what Forex is, but they are involuntary participants in this market. And just as in the ordinary market, if there is a high demand for any product, then the price of it rises, so it happens here. If everyone wants to buy a dollar, but there are few who buy the euro, then the dollar will begin to rise in price. That is, we get the classical scheme - there are sellers, there are buyers, they all combine in the framework of currency trading - another example of what Forex is, why we need it and how it concerns us all.

The above categories can be called "participants in captivity." Now consider those who consciously and without any need buy and sell currency. These are people or organizations who want to capitalize on how, as a result of certain circumstances, one currency rises in price relative to another. The most striking example of this is the crisis in the economy. If you recall the year 2008, when only the lazy did not talk about problems. In a situation of uncertainty, citizens want to at least preserve their capital, they see that the dollar has become rapidly growing in value against the British pound. And this inevitably causes an increase in the cost of all foreign goods (an even brighter example is the year 1998, when store shelves simply went empty due to the fact that people wanted to invest money as quickly as possible at least in something).

That is, a Ford car manufactured in the United States, as it cost $ 15,000, will continue to cost the same $ 15,000, here is a simple arithmetic of the cost of production and the interest of the seller, who does not care what happens in any country, because money was spent and selling cheaper is not profitable. So we get another category of forex participants - those who want not to lose.

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If there are such market participants, then it is logical to assume that there are entire organizations that set as their goal the profit on the trade of such price differences. This category is represented by banks, investment funds, management companies and so on. They invest a lot of money, sometimes competing with each other and creating movements in currencies. Probably everyone heard about George Soros, who earned a huge amount of money on a collapse of the British currency. Now imagine that dozens, hundreds of such Soros, each of whom wants to get rich, work in the forex market. At this point, a simple layman should have an understanding of what forex is, it is not an abstract phenomenon, but a very concrete example of how people make money from the air, this is a highly competitive environment where everyone wants to snatch a piece. The final link in the forex are banks that operate already hundreds of millions of dollars between themselves.

Forex History and Scale

Let's move on to the numbers. According to various estimates, less than 5% of the total volume of currencies are bought and sold for practical purposes, that is, for the reasons that we described at the very beginning. The remaining 95% relates to Forex trading for the purpose of earning. This, of course, does not work out for everyone, because everyone cannot be in the black by definition. Forex is a closed system where one earns and the other loses. If you are going to buy euros for several million dollars, then you will carefully evaluate the prospects, you will suddenly become very interested in such things as indicators of the country's economy, the policy of the central bank, and so on. With knowledge, you can make very good money at Forex, because everything is clear here - either the price moves up or down. By the way, it is for this reason that Forex is often compared with roulette and other gambling, but such statements are usually made by uninformed people who fundamentally do not understand the nature of the market.

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Fifty years ago, few people knew what forex is. Mostly, stocks, raw materials, and goods were traded. But after the American dollar was untied from gold, that is, it became a simple piece of paper, the rapid development of forex began. The daily turnover has grown rapidly and at the moment it is orders of magnitude greater than that in other sectors of the exchange. This is facilitated by the establishment of close economic ties between countries within the framework of globalization, as well as the desire to earn, including by changing the exchange rate of one currency to another. The development of information technology allows now to become a member of forex trading without leaving your home - you can get access to trading literally twenty minutes after a simple registration. So people become traders - professional market participants, in our case forex.

Summing up, we can say that, on the one hand, the whole structure and participants described above are quite simple and understandable, but on the other hand, the market itself is a very, very complex mechanism that must be understood in order to succeed. Forex is not a scam, but a serious part of the global economy, which presents both the practical side and the speculative one. In the first case, this is part of the organization’s work or the desire of a person far from the exchange not to lose money, in the second - conscious actions of a constant nature aimed at making a profit.

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