Forex is a hybrid word meaning foreign exchange. Specifically, forex refers to foreign exchange trading, also known as forex trading, or currency trading.
Trading forex is about making profit on the tiny daily moves in the values of currencies from various countries. Most currencies in the world are "free floating", which means they do not have a fixed value. These currencies fluctuate in value against other currencies, most of the time less than a penny a day. This is a change you might not notice if you are exchanging 1 or 2 dollars of currency, but when you start talking about exchanging 1000's of dollars of currency the difference becomes more noticeable.
Currencies in forex can be affected by economic news, political news, and geographic events. For example, every month there is a payroll report in the US called the Nonfarm Payroll Report, if that report shows that the US is losing jobs or adding jobs too slowly, the US Dollar usually goes down in value.
After hurricane Katrina hit the Southern United States in 2005, the US Dollar was sold rapidly as traders expected problems for the US in the coming months.
Forex is not about the absolute value of a country's currency, but rather the value in comparison to the currency of another country. The Euro(European Dollar) may be rising in value versus the US Dollar, but falling in value versus the Japanese Yen.
Forex is all about demand. If investors, corporations, or governments are buying a currency one currency because they need it for investments, transactions, or foreign government operations, it will rise in value. The opposite is true if they don't want a currency and are selling what they own.
Forex is a difficult concept for most people to really get a grip on. People that are new to forex trading sometimes train or practice for years before they actually get good at it. If this is you, don't fret, with some patience and persistence anyone can learn how to trade forex.
