Reasons for the Popularity of Forex and Currencies

Forex or Foreign Exchange is nothing but a market where corporations, nations and retail investors exchange their money to make a profit. Though the smallest increment in the Forex, the pip, has only a value of 0.0001 of a dollar in most cases, its value quickly adds up to huge profits or losses, due to the fact that trillions of dollars are exchanged in the Forex market which is open 24 hours a day, 6 days a week. Added to that, Forex is one of the most exciting, highly volatile and attractive investment markets in the world.
To explain the exchange of currencies let’s take the following example. If an organisation in the U.S. wants to send money to their office in Europe, they have to convert their U.S dollars into Euros, as one U.S. dollar does not have the same value as a Euro. In order to convert the money, the organisation has to buy Euros with their U.S. dollars through the Forex market. The transaction has to be made in pairs, which means that the organisation has to buy the USD/EUR currency pair to send money to its office in Europe. The converted value of the money depends on the current value of the currency pair in the market. If the USD/EUR has a current value of 1.2500USD, then the organisation will obtain 80,000 Euros if it converts $100,000 at the Forex.
Now coming to the pips, one movement of the above transaction will equal $10 (0.0001 x $100,000). If a trader moves in and out of a position quickly, it is possible for him to make a profit even if the price fluctuates by a few pips. Although it is possible to make a substantial profit in the transactions, making an equal loss is also a possibility.
Because of the huge amounts invested and the strict rules and regulations of the Forex, trading in this market was restricted until recently to corporate giants, central banks and big investment firms. But now, due to advances in technology and relaxation of rules, Forex market is open to retail investors also. An investor can now secure a position with just 1/100th of the total amount traded. On the other hand the probability of losing the investment is high due to the highly volatile nature of the market.
However, with careful analysis and using different strategies, charts and trading systems, it is possible for a trader to determine when to enter and exit a position to make a profit. Though it is possible to make unlimited profits, because of the unpredictability of the Forex market, stops are placed on orders to prevent losses. Even if you are a seasoned trader and use a proven system, it is always wise to place stops on each and every order, as the market can swing unexpectedly sweeping away your investment in the blink of an eye.
The non-stop excitement and the potential to make unlimited profits are the main reasons for the popularity of the Forex. On the other hand, Forex is a high risk market where millions are made and lost every day. If you are a beginner, with hopes to make your millions, it is better to start with a dummy account to gain enough knowledge before entering the real, highly volatile but extremely profitable Forex market.