Demystify Forex

Forex is a truly dynamic market that is open 24 hours a day and 5 days a week. It has a daily turnover of 1.4 trillion dollars, much bigger than any market in the world.

With that much money to go around, the Forex market offers a great opportunity for those seeking to profit from its fluctuations. However approaching the market from the outside can be daunting especially to those with no background in investing. However, nobody really needs a degree in economics to understand this rather simple market!

Behind the technology and all the technical terms, Forex at the very core is a very simple transaction that hasn't change much throughout the years. The techniques and tools may have taken a different form but nevertheless, Forex is but a simple exchange of one currency for another. To better understand this, one need only to look at its roots -the development and history of modern day currencies.

In ancient times, people produce goods in exchange for other goods in what we call the barter system. However, the barter system has it's limitations that hinders the efficiency of exchange.

Say for example a farmer needs to exchange wheat for meat and a butcher needs sheepskin for clothing while the shepherd needs wheat. The farmer won't be able to get his meat directly from the butcher since the butcher has no need for his wheat. He will then have to first exchange his wheat for sheepskin before he can do business with the butcher.

Luckily today, the invention of money made "the exchange" a lot less cumbersome and people don't have to carry sheepskins in order to buy meat from the grocer! But still, the necessity to exchange one currency for another (pretty much like that of the example) still remains as long as commerce continues to move the world.

Imagine a multi-national company from Japan exporting cars in the US. Somewhere along the line a portion of the company's yen would need to be exchanged in dollars to cover for costs that would be incurred in their US operations. This would include the salaries of their American salesmen, import tax, etc. At the other end of the line, the dollar profits coming from the sales of these cars would have to be exchanged for yen in order to pay for the salaries of the Japanese employees working in the Company's production plant somewhere in Osaka.

This is but one simplified, albeit accurate, example in a vast global economy that continues to grow, expand, and intertwine. It is this need that gave birth to the Forex market.

By understanding this concept, anyone approaching the market for the first time would be able too look past the shroud of mystery surrounding the Forex market.