Forex is an abbreviated form of the word foreign exchange. The “FOR” in forex stands for foreign while the “EX” stands for exchange.
Foreign exchange is simply the act of interchanging one currency for another. This is normally done in the foreign exchange market. The foreign exchange market is a market like the town market where you go to buy and sell goods. The only difference is that the foreign exchange market is global and the type of goods traded there are currencies.
The foreign exchange market exists due to the need of settling international trade of goods and services. For example, when a Kenyan trader imports clothes from America, he/she has to pay the American counter party in dollars since the Kenyan shilling is not a recognized currency in America. The Kenyan would have to visit a Kenyan bank or forex bureau to purchase dollars and pay for the goods in dollars. The same process occurs when he/she imports goods from India, UK, Europe, China or any other country.
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On the other hand, when a Kenyan trader exports goods to America, the counter party will pay for the goods in dollars. The Kenyan will have to visit the bank or forex bureau to convert the dollars to shillings so that he/she can transact in the local Kenyan market. The same will hold for exports to India, UK, Europe, China and any other country.
The foreign exchange market has been in existence since time immemorial. Foreign exchange can be traced back to the biblical times where it facilitated trade in the Middle East. Foreign exchange was also one of the greatest income earners of Rothschild banking dynasty. Take a look at some of the houses the family owned from their banking business.
There is much to learn before attaining expertise level in the foreign exchange market. The journey may be difficult and treacherous for some but the fruits will be worth the trouble. Soon you will be able to understand how to trade currencies profitably and earn a passive income.
Apart from earning an income, foreign exchange understanding may come in handy in the near future as international trade continues to spur globalization.
So, sit back and enjoy the ride as we travel down the FOREX road.
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