Foreign exchange (Forex) is the exchange of money from different countries. The value of one country’s currency is constantly changing against the value of another country’s currency. Forex traders make money through buying and selling currencies on the foreign exchange market. The profit potential comes from the fluctuations (changes) in the currency exchange market. You make money by buying a currency at a particular rate (or price) and selling it again for more than you bought it.
Here is an example: EUR/USD 1.2500 means you need 1.25USD to buy one euro. It also means if you sell one euro you get 1.25USD. All trades involve buying one currency and selling another currency at the same time. If in the next day the Euro is rising against the USD and the exchange rate is now 1.26, for every 1 Euro that you bought, you have earned 1USD cent. Or, if you traded the opposite direction, for every EUR that you sold (at 1.25) you lost 1USD cent (since you “buy” back the EUR for 1.26).
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