To understand what Forex is, you must first understand currencies and possible transactions with them. As everyone knows, each country has its own currency. For one or another reason, we sometimes go to the exchange office and buy euros, because a trip is planned soon, for example, to the European Football Championship. You can’t pay with rubles there, so you need to take with you the money that is in circulation in this territory. Now almost any bank has an exchange office where we have the opportunity to buy dollars or euros, and sometimes a larger list of currencies. The most prudent citizens are looking for such an exchanger that will give the best rate.
And everything is logical here - why get $105 for 7,000 rubles, if you can go a little further and get $107 at another exchange office. At first it may seem that the difference is insignificant, and perhaps it is, but not for everyone. And if we imagine that it is no longer 7,000 rubles, but all 70,000, then the savings can be $ 20. So we come to the first important thought - we are ready to exchange money for foreign currency, and there are many offers and it would be a reasonable option to choose the most profitable of them.
The market itself, in which this exchange is carried out, is called forex. This word is formed from two others taken from the English language – foreign and exchange. Thus, the general meaning of what Forex is becomes clear - the exchange of foreign money. This is the common name for the entire huge foreign exchange market, which includes such small exchange transactions at the bank's cash desk. And these operations can be called the very first and smallest link in the entire money exchange system.
Foreign exchange market participants
It was an example of a cash settlement in Forex, when you gave rubles and received paper dollars or euros. But nowadays more and more people are switching to cashless payments, keeping their savings on deposit, and taking money “for life” from the card where the salary comes. When a bank account is opened, usually employees in a rather annoying form also offer to open accounts in euros and dollars, sometimes even for free in addition to the main one. Having such an account, you can easily transfer money from your ruble account to a dollar account through mobile banking. This is the same mechanism as in the case of the cash register, but now you don’t even have to go outside - everything was done electronically. Fast, convenient, and even the exchange rate in such a situation is often much better than what is offered at the branch. Here is another example of what forex is.
Now we know that it is possible to change both money in cash and non-cash, you just need to contact a bank or an exchanger. A simple citizen who flies on vacation once a year and sometimes replenishes his foreign currency bank account is a participant in foreign exchange trading without even knowing it. You just need to look at it from the other side - for example, such a person spent 300-500 dollars on vacation, which he had bought before. If we take the average number of tourists who fly abroad every year and spend dollars there, then the total amount will already be several billion dollars. That is, in fact, the annual demand for dollars that are necessary for recreation and it is expressed in such a rather large amount. And now let's try to imagine that a huge number of tourists who want to buy a ruble also enter our country - no one at the checkout in a store will accept a bottle of mineral water for payment with a dollar.
As a result, we get a very complex system, where there are a huge number of participants with their own different interests. And the seasonality factor is also added to it - they fly abroad in the winter, and tourists tend to Russia, on the contrary, in the summer. Then you can add all sorts of holidays, sporting events and so on, which gives just countless factors that affect for buying any currency. But these are all trifles compared to corporate activities and trade relations with other countries. For example, there is a company that is engaged in metalworking and sells finished materials abroad, receiving payment in euros. By the time when it is necessary to submit an accounting report and pay taxes, such a company is forced to convert the profit received in euros into rubles so that everything is in accordance with the law. Each country has some kind of export and import, which creates a widespread need to periodically exchange money, all operations are carried out on the forex - we sell or buy one money for another.
So, we already have two large groups of forex participants - ordinary residents who operate with small amounts for practical purposes and legal entities that work with foreigners and are forced to carry out certain currency transactions. Perhaps many of them do not know what Forex is, but they are unwitting participants in this market. And just as in a normal market, if there is a high demand for any product, then the price of it rises, so it happens here. If everyone wants to buy the dollar, but there are few who buy the ruble, then the dollar will begin to rise in price. That is, we get a classic scheme - there are sellers, there are buyers, they all unite within the framework of currency trading - another example of what Forex is, why it is needed and how it affects all of us.
The above categories can be called “captive participants”. But there are those who consciously and unnecessarily buy and sell currencies. These are people or organizations who want to make money on how, due to certain circumstances, one currency becomes more expensive relative to another. The most striking example of this is the crisis situation in the economy. If you remember 2008, when only the lazy did not talk about problems. In a situation of uncertainty, citizens want to at least preserve their capital, they see that the dollar has become rapidly rising in price against the ruble. And this inevitably causes an increase in the cost of all foreign goods.
That is, a Ford car made in the United States cost $15,000 and it will continue to cost the same $15,000, it is a simple arithmetic of the cost of production and the interest of the seller, who does not care what happens in some country, because money was spent and selling cheaper is not profitable. But in rubles it can already become not five hundred thousand, but a million. At the same time, most of the population receives a salary in rubles, the employer also does not care what happens to the exchange rate. All this leads to the fact that people go to exchange offices and begin to change rubles for dollars and euros in the hope of maintaining their savings. So we get another category of forex participants - those who want not to lose.
Now let's move on to the most important thing - the participants in the foreign exchange market who want to make money on a change in the exchange rate. Over the past fifteen years, periods can be distinguished when the ruble was at stable levels, that is, the dollar cost about 30 rubles and fluctuated a little, sometimes a little more expensive, sometimes a little cheaper. This was followed by a mortgage crisis in the United States and a long period of recession in the global economy. In Forex, this resulted in the fact that the dollar exchange rate began to change constantly. Including simple logic, one can draw a very simple conclusion - why not buy dollars at 33 rubles and sell at 35? It will turn out to earn, the total amount in rubles will become larger. Then wait a little and buy dollars again at 33, and if possible, then at 32, hold them and then sell them again at a higher price. This simplified version gives an understanding of what is the logic of speculators who make money on changes in exchange rates.
If there are such market participants, then it is logical to assume that there are entire organizations that aim to make a profit on trading such price differences. This category is represented by banks, investment funds, management companies and so on. They invest a lot of money, sometimes competing with each other and creating movements in currencies. Probably everyone has heard about George Soros, who earned a huge amount of money on the collapse of the British currency. Now let's imagine that dozens, hundreds of such Soros work in the forex market, each of which wants to get rich. At this moment, the understanding of what forex is should change for a simple layman, this is not an abstract phenomenon, but a very specific example of how people earn money essentially from the air, this is a highly competitive environment where everyone wants to snatch their piece. The final link in forex are banks that already operate hundreds of millions of dollars among themselves.
History and scale of forex
Let's move on to numbers. According to various estimates, less than 5% of the total volume of currencies is bought and sold for a practical purpose, that is for the reasons that we described at the very beginning. The remaining 95% relate to forex trading for the purpose of making money. Of course, not everyone succeeds, because everyone cannot be in the black by definition. Forex is a closed system where one earns and the other loses. If you bought a dollar at 33, and it began at 32, you probably won’t get upset, but simply put them off “until better times.” But if you are going to buy them for several million rubles, then you will evaluate the prospects very carefully, you will suddenly become very interested in such things as the indicators of the country's economy, the policy of the central bank, and so on. With knowledge, you can make very good money on Forex, because everything is clear here - either the price moves up or down. By the way, it is for this reason that Forex is often compared to roulette and other gambling, but such statements are usually made by ignorant people who fundamentally do not understand the nature of the market.
Fifty years ago, nobody knew what Forex was. Basically, trading was carried out in shares, raw materials, and goods. But after the American dollar was disconnected from gold, that is it became a simple piece of paper, forex began to develop rapidly. The turnover per day was growing rapidly and at the moment it is orders of magnitude higher than that in other sectors of the exchange. This is facilitated both by the establishment of close economic ties between countries within the framework of globalization, and by the desire to earn money, including by changing the exchange rate of one currency to another. The development of information technology now allows you to become a Forex participant without leaving your home - you can get access to trading in just twenty minutes after a simple registration. This is how people become traders – professional market participants, in our case forex.
Summing up, we can say that on the one hand, the entire structure and participants described above are quite simple and understandable, but on the other hand, the market itself is a very, very complex mechanism that needs to be understood in order to achieve success. Forex is not a scam, but a serious part of the world economy, in which both the practical side and the speculative side are represented. In the first case, this is part of the work of the organization or the desire of a person far from the exchange not to lose money, in the second - conscious actions of a permanent nature aimed at making a profit.