Forex

Money makes the world go around. Whether we like it or not, money is what drivers our society. Some spend it, some save it, while others trade it. Trading money for money is called currency trading. Quite often, currency trading is done for economical reasons, when companies or individuals have to buy a given product that requires the payment to be in a different currency. But in the past decades, currency trading became a source of making money, a lot of money.

In order for you to understand FOREX, you must first study the evolution of currency trading. We all know that civilizations have gone for many years without using money, simply by trading animals, pottery, grains, etc.

The Chinese were the first to come up with the idea of paper money. Prior to that, in 640 B.C. the King of Lydia started producing 'imperial coins' and his example was soon followed by the Romans. During that time, it was hard to make people believe that a piece of metal or paper is as valuable as their cow. And so, this system soon went out of favor, until the 1700's when the goldsmiths invented a useful system of paper money in Europe. When people came to them to clean or melt a piece of gold, they would receive a receipt from the goldsmith and anyone who came back with it was able to retrieve the amount of gold listed on the receipt. That's how the term 'backed by gold' came up. As a matter of fact, that is how the whole idea of a currency that represents an actual amount of gold located somewhere came.

The latest currency trading revolution is the electronic money. Nowadays, 92% of the world's wealth exists only computer databases and bank records, which just 8% of it being in the form of actual money.

Now the whole currency market is free-flowing, based on the 'search and demand' principle founded by Adam Smith. In this type of economy, the value of a given currency depends on how demanded it is. The greater the demand, the higher the value. The exchange rates are changing all the time and all sides of the currency trading market play a numbers game, waiting for the rates to go down, buying up a given amount of a currency only to be sold when the rates get back up again. This is a sort of speculative business, because in it, nothing is being produced, the money remain the same, virtually moving from one side to another. This is very similar to the Energy Conservation Law that states that energy can't be produced or lost, it can just be transformed from one form to another.