Forex Trading is meant to be known as Foreign Exchange Trading or trading by exchanging currency. The understanding of forex trading is complementary with the understanding of foreign currency. Foreign currency is simply a currency of any country; say the Indian rupee, the US dollar or the UK pound. Initially, we were known to the barter system for buying and selling of goods.
With the change in times there occurred a change in the buying-selling process; as it saw a tremendous change in the form of currency exchange. When buying inside the territory of a country, the process is relatively easy but when exports and imports come into scene, traders have to have a system that is easily acceptable and can be related to. The system of currency exchange comes to the rescue here. To explain in simpler terms, the money or currency of one country is changed into the currency of another. An example here might help the understanding of foreign exchange. A trader from Japan exporting material from USA will have to exchange the Japanese yen with the US dollar.
When foreign exchange trading is to be understood in broader terms in lieu of big time profits, we look into the foreign trade on the larger scale, i.e. between worldwide traders rather than foreign exchange happening due to tourists travelling worldwide or other reasons. Tourists though provide with a lot of foreign currency but the economic condition improvises with that of big trades happening at the global level. The main flow of foreign currency into a country can be accredited to forex trading or forex market, as it is popularly known. It is due to this that forex has gained popularity and is the most acceptable medium for exchange of currency.
The major thing under consideration is the national income of a country which improves a lot with the help of increased foreign trade, which brings in foreign currency to a nation. Thus, forex trading is derived from initials of Foreign Exchange Trading which simply means trading under foreign exchange. Foreign exchange trading is picking up immensely due to increased businesses globally. Many investors choose to convert currency in forex for maximum profits. The forex trading or forex market is characterized with extreme liquidity and the most traded currencies on forex are the US Dollar, the Japanese Yen and the Euro.
The forex being a highly liquid medium assists the trader in buying and selling currency easily and quickly without being caught in other investments. Thus, this form of trading is always profit yielding.
