What Does Forex Mean – Forex Meaning Explained

by Jun 18, 2020What Is Forex

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What does Forex mean is simple to explain because meaning of the word Forex is combination of several words.

Forex word is combination of words, Foreign Exchange, where first three letters from the first word are taken and where first two letters from the second word are taken.

FOReign EXchange

FOREX

Combination of the letters have made one word Forex just because of easier spelling and using in conversation. If you make a test what is easier to say, Forex or Foreign Exchange, you will see that Forex is much easier.

You will also find even shorter word for Forex that is used in financial area. That is FX which is combination of the first letter F and last letter X.

Fx or Forex or Foreign Exchange is the same and it means the same. Which one you will use depends on you but which ever you will use you will not make a mistake.

All three words are used widely on forums and news portals so feel free to use any but try to stick on most used and that is Forex.

Forex Meaning

So what is the general meaning of FX, Forex or Foreign Exchange?

As the main word Foreign Exchange says it is exchange where the currencies are exchanged.

Meaning of the exchange is to give one currency  for another. Person or company can make exchange of one currency for another in order to acquire desired currency.

While most people do not have different currencies in their pocket because they are not using them every day and there is no need, person must make an exchange of currency they are using now for another currency.

Currency Exchange Example

For example, exchange of a currency is done when you want to travel in another country where your currency is not valid. You currency is not valid because people in foreign countries have their own currency.

For example, U.S. citizen could travel to Europe where U.S. dollar is not used.

He needs to have European Euro in order to pay the costs. So he needs to make an exchange of U.S. dollars into Euro and that exchange is done in the exchange office or in the bank.

When U.S. citizen acquire Euro currency, he can travel to Europe and make a purchase with Euros.

Forex Meaning in English

When you look into dictionary about Forex meaning in English it says: the system by which the type of money used in one country is exchanged for another country’s money, making international trade easier.

It says same thing what I have said in the example above. You need to have currency that is valid in the country you are going.

When you have valid currency all transactions are easier to make because there is no conversion when paying for something.

Lets split Foreign Exchange into two words to make things easier.

If we divide Foreign Exchange into two words we will have Foreign and Exchange.

Foreign on English tells you that it is not not domestic or local. It is outside your country.

This is explanation from dictionary:

Foreign = belonging or connected to a country that is not your own

Exchange on English tells you that it is about exchanging. In this case exchange is about currencies where you received desired currency in exchange for currency you give.

This is explanation from dictionary:

Exchange = the act of giving something to someone and them giving you something else

Forex Pair Meaning

When you enter into Forex you will always have a pair of two currencies. What does it mean having two currencies in a Forex pair?

Well, when you trade on the Forex you will sell or buy currency.

In case of selling you will sell one currency and buy second one.

In case of buying you will buy one currency and you will sell second one.

To explain this analogy to you, here is an example with U.S. dollar and Euro.

Example of Forex Pair

Forex pair of Euro and U.S. dollar will be written as EUR/USD or EURUSD. You can write it both ways and it will have same meaning.

When you want to exchange Euro for U.S. dollar you will need to give some Euros to get some U.S. dollars.

Exchange office will offer you some price and that price will be written as:

EUR/USD = 1.1234

The meaning of Forex pair price EURUSD = 1.1234 is that you will need 1.1234 USD to get 1 Euro.

So, if you want to have 1 Euro, exchange office will need to sell you Euro and buy U.S. dollar from you because you are paying with U.S. dollar.

With that transaction you have buying and selling Forex pair. That is the meaning of a Forex pair and how it works.

Conclusion

What does Forex mean is quite easy to understand and that is Forex is currency exchange.

Forex can be said as FX, Forex or Foreign Exchange and it depends what you like to use.

All Forex traders will understand you when you use any of these words but mostly used is Forex.

If you are interested to find out more what does Forex mean you should read article about what is Forex trading in general. There you will have much more information that will introduce you to Forex.

Frano Grgić

Frano Grgić

A Forex trader since 2009. I like to share my knowledge and I like to analyze the markets. My goal is to have a website which will be the first choice for traders and beginners.

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