What Is a FOREX Commodity?

by Zachary J. King

Overview

Foreign Currency

fb137b8b-0648-2f67-a867-65e8e361ffd7300400

Forex trading, also called FX, is the trading of one currency against another. Investors' gains and losses depend on accurately or inaccurately predicting how well one currency will perform against another. Recently, this industry has grown precipitously, leading to more people getting involved and attention from U.S. regulators.
History

Foreign exchange trading grew out a shift in monetary policy. As currencies shifted off the gold standard, forex became the largest market in the world.

Significance

While forex trading has traditionally been exclusive to very sophisticated investors, in recent years it has become accessible to the public, with trading platforms allowing 24-hours-a-day trading all over the world. Some investors sign up with only a few hundred dollars, and may even use a credit card.
Markets

Although much of the draw of forex trading is related to the access to markets and the high leverage, there are also reasons to use forex as a hedging tool. A forex trade may be used to hedge against a change in foreign exchange rates. An example of this is a seller of goods who will receive payment in foreign currency at a future date using forex trading to hedge.
Potential

Forex trading is high risk. It may have the potential for the largest gains and losses of any market in the world. Because of high leverage ratios offered by many foreign exchange brokers, a person may lose or gain 100 percent of his investment with only a 1 percent change in rates.
Warning

The Commodity Futures Trading Commission, a U.S. regulator of forex trading, has issued warnings regarding forex. These warning include the potential for fraud in forex trading and risks.

Overview