FOREX works very simply. Exchanging foreign currency is the buying of one currency while selling another at the exact same time. It is done in pairs. Four major currency pairs are usually used for investment purposes. They are the Euro against the US dollar, the US dollar against the Japanese yen, the British pound against the US dollar, and the US dollar against the Swiss franc. The way it works is, with the ever changing value of each nations currency constantly changing, one nations currency is never precisely equal to another. FOREX traders use this to turn a profit.

For example, if the 1 Japanese Yen is worth approximately $1.48 U.S. and you believe that the Yen will increase in value in comparison to the U.S. dollar, you would sell your dollar and purchase the Yen. Once the value of the Yen increases, you would sell it back to purchase the U.S. dollar.

One thing that makes FOREX so much more exciting is the large amount of margin that is allowed by most brokerages. Margin is a system used in FOREX that allows an individual to increase his purchasing power greatly. An investment on $1000 of your own money will offer you $100,000 worth of purchasing power at a 100:1 ratio that most brokerages offer. This allows you to purchase and sell in much greater amounts than would otherwise be possible.