Forex trading is when businesses, banks, and individual traders get to exchange one currency to the other, making profit out of it via brokers such as cfd trading South Africa. Forex is normally referred to as FX or in full, foreign currency exchange, and it is the largest and the exciting market in the globe with average turnover daily of almost $5 trillion. The forex market normally opens its doors virtually 24 hours a day, 5 days weekly based on the main world trading centers, Hong Kong, New York, London, Tokyo, Frankfurt, Sydney, Paris, Singapore, and Zurich.
It started way back in 1876 when the standard gold exchange was activated. In a language which is simplified, that is when all the paper currency were required to have a gold backup which is solid. The idea which is behind it was stabilizing the currencies to attach them to the prices of gold.
The theory did sound good, but the reality proved it wrong. Instead of being able to stabilize the currency, the gold standard decreased during the World War 2. There was not enough gold of dealing with all the currency which was printed utilized in covering the military expenses.
Then the new idea of fixed exchanges came to its rescue which resulted in the USD turning to be the primary reserve currency – the currency which was attached to the gold alone. And this is referred to as the system of Bretton woods. Towards the end of 1971, the USA refused to exchange gold for the USD held in the foreign reserves.
It is what marked the end of the system of Bretton woods and the start of the legalization in the world of floating foreign exchange rates. In the year 1976 marked the start of the forex the way it is known, but it took about 20 years before the foreign currency exchange market to become readily available online for the public.
What is forex trading?
The forex trading refers to when traders are speculating on the prices of a single currency in relation to the rest. Based on the understanding of factors which move the market and your day to day predictions, it is possible in making profit from the fluctuations of prices.
An example is where you find yourself holidaying in Mexico. At the airport, you will have to exchange your American USD to the Pesos. When you exchange one currency to the net, you have involved yourself in exchange rate in full speed.
If the exchange rate as at 18.88, it means that for a single USD that can readily purchase 18.88 pesos. Now if you will be exchanging the 100USD, you will get 100USD x 18.88 = 1,888pesos. That means that you are going to have more money at your disposal. If there a political uproar and the exchange rate goes to 10.42,, to have 1888ppesos will make you to rush to the shop for exchange and change it back to the USD.
1888/10.42 will give you 181.19USD. In just a few hours, you managed to earn $81 successfully doing completely nothing.