Forex is simply short for foreign exchange, but refers more specifically to trading currencies.
The forex markets are the largest, most volatile, and among the most risky forms of trading in the world. Amounts exchanged are huge, magnifying small price changes, and the total daily volume is in the range of two trillion dollars.
There are dozens of markets, with the largest centered in London, Tokyo and New York. Although, 'centered' is slightly misleading, since there's no physical exchange that trades currencies - unlike the London or New York Stock Exchanges for stocks.
Instead, the playground primarily of large institutions - international banks, insurance companies, and governments via their central banks - forex trading is carried out by phone and via computer networks, formerly all private or government but now including the Internet.
Internet along with changes in trading methods, is what makes possible the opportunity for the individual investor with less than a few million dollars to participate in the highly speculative, fast-paced game of currency trading.
In order to play that game without getting immediately run over, the investor will need to do some research in new areas, find a broker who trades currency and become familiar with new phrases and quoting methods - spreads, pips, cable, and the like.
Calculations formerly carried out with ease will now need a little more thought. Everyone's used to their own currency and seeing a $10 stock go up by a dollar one immediately sees a 10% gain. Forex trading requires a little more knowledge.
Trading EUR (euros) for USD (US dollars) at 1.2105/1.2110 (a five pip bid/ask spread), for example, means the investor can buy ?1 (one euro) for $1.2110. Since trades are done in chunks of 100,000 (1 lot; 200,000 equal 2 lots, etc) the investment costs $121,110 - a pittance for the average currency trader, but a substantial sum for the average investor.
Enormous sums are traded in forex and only commodities trading offers similar ease in feeling dumb and getting poor fast. But losing money isn't inevitable for the prepared investor.
The prepared investor will need to expand the scope of his research. Finding out the likely future of a home-based business is complicated, but straight forward. Conditions in one or two sectors and a few economic indicators can be grasped without requiring a PhD in finance. Learning about the factors influencing the currencies of two or more countries is an order of magnitude more difficult.
Fast pace, global scope, large liquidity and volume, and a dozen different ways to hedge your bets. Yeah, if that sounds good, forex trading may be right for you.
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