Forex Exchange? Don’t Make This Mistake
First I want to start this blog off by telling you that there is no such thing as Forex Exchange! At least not on this planet 😉 So why am I writing about it? Google tells me that thousands of people search the term Forex Exchange every month and over the years I have heard many people use the same term to their mistake. This article is going to set the record straight for what people really mean when they are saying Forex Exchange.
If Not Forex Exchange then What?
What we are talking about here is the Foreign Exchange, FX or Forex Market, or Currency Market. It turns out that when people come to the Forex market they sometimes have a little bit of confusion when it comes to all the different terms that are thrown around in the media and online to describe the same thing. It’s true, there are several terms used to describe pretty much the exact same thing. What we are going to do here is go over the most common terms so that you can look and sound all smart when you’re talking about Foreign Exchange or Forex Trading.
Everything we go over in this article is going to be trading specific because this site is all about trading. If you want the academic stuff you can get your fill by heading over to Investopedia.
In This Article
We are going to cover and define the most common words associated with the Forex Market and Forex Trading that traders might mean when they are searching or saying Forex Exchange.
- Ways to Trade Forex
- Foreign Exchange and Foreign Exchange Trading
- Forex, Forex Market, and Forex Trading
- FX and FX Trading
- Currency, Currencies, and Currency Trading
- Exchange Rate
Ways to Trade Forex
Ok, before we get into the common words associated with Forex and Forex Trading we should make the distinction that there are terms used to “describe” Forex Trading and there are “ways, methods, or trading products” to actually go about placing Forex trades.
You can trade foreign exchange in many different ways such as currency futures, currency options, currency ETFs, or the Spot Forex Market. To keep things simple we are only going to speak in terms of the spot market because retail traders trade the spot market almost exclusively whether they know it or not. The spot Forex market is also one of the lowest barriers to access for retail traders because you can open a trading account with as little as $50. If you have a trading account with a Forex broker then you are almost assuredly trading on the spot market.
What is the spot market? It’s basically a market where currencies are traded immediately “on the spot” using the current price that your broker is quoting you. It just means that if you push the buy button your trade gets executed immediately. It doesn’t need to be any more complicated than that. If you want to go really deep Google will provide you with endless amounts of information on the spot market but we are going to keep it simple here.
Foreign Exchange and Foreign Exchange Trading
Foreign Exchange is the exchange of one currency for another. This could also be the conversion of one currency into another. You can also think of it as an over the counter global market where currencies are traded virtually 24 hours a day 5 days a week. This market takes a break for the weekend. However, you can still trade your holiday money at your local bank or a kiosk at the airport on the weekend.
When people say “Foreign Exchange”, when referring to trading, what they are really trying to say is Foreign Exchange Trading. This is simply the buying and selling of one currency for another currency.
An example of trading Foreign Exchange Market: Let’s say that you have US Dollars and you want to exchange them for British Pounds. All you would do is simply buy the GBP/USD currency pair. Effectively, you are buying GBP by selling your USD. You always have to buy one currency and sell another in the Foreign Exchange Market. This is because you can’t buy USD with USD for example.
Forex, Forex Market, and Forex Trading
Forex is an abbreviation for Foreign Exchange (For-Ex). You can see that the word Forex just takes the first few letters from each word in Foreign Exchange.
If you really want to tell your friends or your judgemental father in law that you trade the foreign exchange market then tell them proudly that you are a “Forex Trader”, “FX Trader”, or “Currency Trader”. You don’t need to make it any more complicated than that. Besides, most people go cross eyed when you tell them you are an FX Trader. But if they do ask you what that means then likely you will have to dump a ton of information on them that probably make them pass out. Just take pride that you are a super star taking the road less travelled.
FX and FX Trading
Sometimes traders like to be fancy or be part of their own special club. FX is a snazzy way that the big city traders in London like to refer to Foreign Exchange Trading or Forex Trading. They are self-described FX Traders.
If you were to ask me how I describe myself I would say that I am an FX Trader. But, when people ask me what I do for a living I typically say that I am a currency trader because more people understand what a currency is than what FX or Forex trading is. This is just so that I don’t need to get into a long winded conversation with someone that has no idea and probably no interest about what I do.
Currency, Currencies, and Currency Trading
Currency is just that…..money, dolla dolla bills yal! When we are talking about trading Currency and Currencies it is the same thing as trading Foreign Exchange, Forex, or FX. It’s all pretty much the exact same thing. However, more people understand what Currency is and therefore using this word to describe trading in the Foreign Exchange Market will be more widely understood by people who may not be as clued up as you.
The exchange rate is the value of one currency as it’s expressed in terms of another currency. An example would be if GBP/USD is currently priced at 1.3500 then this would mean 1 Great British Pound is currently worth $1.3500 of US Dollars. I wanted to throw this one in here just for good measure.
When talking about trading in the Foreign Exchange Market there are a few different terms kicking about to describe the same thing. For the sake of simplicity, Foreign Exchange, Forex, FX and Currency trading is effectively the same thing if we are talking about trading on the spot forex market which most of us do. No need to be confused, just pick which ever term you prefer and state proudly that you are a ______ (fill in the blank) Trader!