What is forex has very few definitions. In fact there is only one that makes the most sense. It is the buying of money, in which you trade one currency for another. Greenbacks, Swiss Francs, Kiwis, Rands, Krones, and dozens of other currency names exist. It all comes down to the basic definition that it is something that spends in order for us to buy goods. With the foreign exchange market the goods we are purchasing are just more money at a different value and in a different country. Foreign exchange has evolved from a straight trade of one for the other to an electronic form. We no longer put our hands on the physical money when we trade. Instead, we hold, for a short time, another currency before exchanging it back for the closing of the transaction. Presumably the exchange back is done so with profit.
What is Forex in Terms of Profit
Before you can truly understand what is forex, you have to wrap your mind around the buying and selling of currency which happens at the same time. Unlike the stock market, you buy and sell. Stocks you just trade money for an investment in a company for a certain period of time. When you buy you need to know which currency is going to lead to the profit. To understand this best let us consider a currency pair, for you will always see currencies in pairs as you trade.
DKK/THB is a currency pair. You have the Danish Krone and the Thai Baht. The positions of the currencies in the format DKK/THB tell you two things:
· DKK is the base currency, while the THB is the quote currency
· The DKK is considered the stronger currency
The base pair is always first in the standard format, as well as the strongest. Ages ago when the standard was set by the ISO it was determined that the base currency should be the strongest and first in the pairing name. If you learn nothing from what is forex other than the standard format then at least you are armed to trade with slight success.
The base pair is not always the strongest and it could be the THB in our example is trending for a gain in value.
What is Forex Gain in Value
The gain in value for any pairing is determined by the quote value. The base currency is always 1.00. So, for DKK/THB you have DKK= 1. If the quote is more than 1.00 for the THB such as 4.09, the THB is weaker than the DKK. If the quote is less than 1.00 such as .9999, the THB is stronger than the DKK. What is forex would be remise not to mention that some currencies are always weaker than the base, but they can trend for a gain in value. If the quote was 4.09 for the THB and it went to 3.999 this would be a gain in value. It now takes less THB to make DKK, although you still get fewer DKK when you trade sell THB.