What is forex? This is a hard question. There are so many websites and TV adverts that mention foreign exchange these days. You will see it shortened even farther to FX or 4X.

A simple example may help to illustrate this. Let’s imagine you are an American and you are planning a visit to Europe. The currency of most states in Europe is the euro, so you would wish to exchange USD from your bank for euros so that you would have some cash to spend while you are there. You may buy $500 worth of EUR a couple of weeks before your trip. But then, something comes up at the last moment and you cannot go to Europe after all. So you change the money back into USD and put it back in your bank. Now, in the 2 weeks you had those euros, the value of the euro against the dollar will have changed at least a bit. Generally it doesn’t change a heap and due to the bank’s commission, you would find you get back less than your original $500. But if the value of the dollar truly fell in that time, or the euro rose by a lot, you might end up getting back more than $500. So when we look at what is foreign exchange as a method to earn money, that could be a simple illustration. However, people who start foreign exchange trading don’t do it by buying foreign currency bills from their bank. You don’t ever have the currency delivered, you just purchase or sell according to whether you believe the price will rise or fall, and then trade back out when you have either a significant profit or a loss.

Obviously, this is a dangerous business, but as you can deal in lots that are a hundred, 200 or even four hundred times your own balance, it has the ability to make you a lot of money. This is what draws most people to foreign exchange trading, and why knowing what is forex can be helpful in today’s world..