Forex is
a nickname for the foreign exchange, a vast market of trading in which the
commodity is money itself. In the forex market, traders are buying and selling
foreign currencies -- trading dollars for euros, pounds for yen, and so forth.
a nickname for the foreign exchange, a vast market of trading in which the
commodity is money itself. In the forex market, traders are buying and selling
foreign currencies -- trading dollars for euros, pounds for yen, and so forth.
Forex is
profitable because national currencies fluctuate from day to day based on
predictions of the nation’s gross domestic product and other factors. As with
the stock market, the idea with the forex is to buy low and sell high: Buy a
lot of a particular currency when it’s weak, then sell it when it becomes
stronger.
profitable because national currencies fluctuate from day to day based on
predictions of the nation’s gross domestic product and other factors. As with
the stock market, the idea with the forex is to buy low and sell high: Buy a
lot of a particular currency when it’s weak, then sell it when it becomes
stronger.
For
example, bad financial news in Great Britain means that forex traders will be
selling off their British pounds as fast as possible, as the pound is about to
become devalued. Once the pound recovers, those traders will sell it for
something else, thus turning a profit.
example, bad financial news in Great Britain means that forex traders will be
selling off their British pounds as fast as possible, as the pound is about to
become devalued. Once the pound recovers, those traders will sell it for
something else, thus turning a profit.
Though
we talk of “buying” and “selling” pounds, euros, yen and francs, the
transactions performed in the forex are not literal. That is, if you want to
buy 100,000 euros, you don’t have to withdraw the equivalent U.S. dollars from
your bank account and swap them out for a big stack of euros. Everything is
done on paper only, though the resulting profits and losses are real.
we talk of “buying” and “selling” pounds, euros, yen and francs, the
transactions performed in the forex are not literal. That is, if you want to
buy 100,000 euros, you don’t have to withdraw the equivalent U.S. dollars from
your bank account and swap them out for a big stack of euros. Everything is
done on paper only, though the resulting profits and losses are real.
Because
the transactions are not done physically, there is room in the forex for what
are called “margins” or “leverage.” Put simply, this means you don’t have to
actually put up the full amount of the position you’re taking. Usually the
margin is 1%, meaning that when you put $1,000 into it, you’re actually getting
$100,000. Of course, margins multiply your losses as well as your profits, so
you have to be careful.
the transactions are not done physically, there is room in the forex for what
are called “margins” or “leverage.” Put simply, this means you don’t have to
actually put up the full amount of the position you’re taking. Usually the
margin is 1%, meaning that when you put $1,000 into it, you’re actually getting
$100,000. Of course, margins multiply your losses as well as your profits, so
you have to be careful.
One of
the reasons for allowing a 100:1 margin like this is that the major world
currencies in the forex market usually fluctuate less than 1% a day. (In the
stock market, a typical stock might fluctuate as much as 10% in one day.) With
changes that small, your daily loss or gain on an initial investment of $1,000
would be almost imperceptible, usually less than $10 either way. By multiplying
it by 100, the gains and losses in the forex market are more pronounced.
the reasons for allowing a 100:1 margin like this is that the major world
currencies in the forex market usually fluctuate less than 1% a day. (In the
stock market, a typical stock might fluctuate as much as 10% in one day.) With
changes that small, your daily loss or gain on an initial investment of $1,000
would be almost imperceptible, usually less than $10 either way. By multiplying
it by 100, the gains and losses in the forex market are more pronounced.
With
leverage implemented that way, the basic “lot” for buying and selling
currencies is usually 100,000 (which of course only costs 1,000). Most firms
that handle day-trading on the forex market don’t go any lower than that.
leverage implemented that way, the basic “lot” for buying and selling
currencies is usually 100,000 (which of course only costs 1,000). Most firms
that handle day-trading on the forex market don’t go any lower than that.