Forex (Foreign Exchange – “foreign exchange”) – is the international financial market, which is the currency exchange. It was founded in 1976, when all the countries of the world abandoned the gold standard and moved to the Jamaican system, where the exchange rates are set not by the state, but by the market. Forex became simply necessary for the normal functioning of the world economy and for the exchange of capital between different countries.
Sometimes traders call the Forex currency exchange. But Forex is not. This is an international over-the-counter market. It is not tied to a specific place of bidding, since it is a virtual market, whose participants can make transactions with currency from anywhere in the world.
Another difference from the Forex market is the relatively small amount of funds that is necessary for trading.
How do you trade Forex?
Trade in the Forex market is carried out by currency pairs, in which one currency acts as a commodity, and the other as a means of payment for this commodity. The most common currency pair is the euro / dollar, or, as it is customary to write, EUR / USD. This means that the euro is bought and sold for dollars.
It is important to understand that forex trading is carried out by significant amounts, usually equivalent to $ 100,000. Therefore, in order for an average person to enter the Forex market, a Forex dealer or broker is required, which provides the trader with a so-called leverage, i.e. additional funds for trade transactions. For example, for every $ 1 a trader can perform an operation on $ 50. In this case, the leverage will be 1:50. This way of trading in the Forex market is called margin trading.
In our example, using a leverage of 1:50, a trader for his $ 2,240 will be able to purchase no longer € 2,000, but € 100,000 (= $ 112,000), at a rate of $ 1.12 for € 1. And when the euro rises to $ 1.13 for € 1, the trader will be able to buy $ 113,000. By closing the deal, he sells the euros he bought, and his profit is $ 1,000, not $ 20, as it would be without a shoulder – i.e. in 50 times more. In this case, the Forex dealer, providing the trader with leverage, pays the amount on his trading account. This pledge is called margin, so this trade is marginal.
High profitability of Forex trading
For many, speculative trading has become a profession that generates a high income. Moreover, trading in the Forex currency market allows you to protect your savings from inflation: with a competent Forex trade, the profitability of a trader’s work is many times higher than inflation.
To increase the amount of profit, you can use the so-called leverage, that is, borrow the capital of the Forex-dealer, having the established minimum amount on the account – margin. This allows the trader to open significantly larger positions, as if his account has significant capital. As a result, the trader bears proportional risks, acquiring the opportunity to obtain a solid income.
The maximum amount of leverage in Russia is 1:50, i.?. for every $ 1 trader can perform an operation at $ 50.
Suppose a trader has some starting capital. Believing that the euro / dollar exchange rate will grow, it acquires € 2,000 at a rate of $ 1.12 for € 1. The deal amounts to $ 2,240. Let’s assume that the euro’s rate rose to $ 1.13 for € 1. In this case, € 2,000 will cost $ 2,260. If the deal is closed and the trader sells his € 2,000, he will earn on the exchange rate difference of $ 20.
As you can see, the profit is small. However, using a leverage of 1:50, a trader for his $ 2,240 will be able to purchase no longer € 2,000, but € 100,000 (= $ 112,000), at a rate of $ 1.12 for € 1. And when the euro rises to $ 1.13 for € 1, the trader will be able to buy $ 113,000. By closing the deal, he sells the euros he bought, and his profit is $ 1,000, not $ 20, as it would be without a shoulder – i.e. in 50 times more. In this case, the forex dealer, providing the trader with a leverage, pays the amount on his trading account. This pledge is called margin, so this trade is marginal.
Forex – making a profit regardless of the market trend.
The fact that Forex can be traded both on a decline and on a rise in currencies is another advantage of this market. If the stock market starts falling and the uptrend turns into a downtrend, this often brings great losses to stock traders.
On Forex, the decline in the price of one currency does not lead to a drop in the market, but only means a rise in price of another currency against it. This feature allows you to make profit on Forex regardless of the direction of currency movements. After all, the benefits can be extracted both with the increase and with the decrease of the rate.
Forex is a round-the-clock trading opportunity.
Forex operates around the clock thanks to the location of major currency sites in all time zones. Therefore, you can trade on the difference in exchange rates at any time convenient for you (except for days off when trade is not conducted).
Forex market is not tied to a specific place
Forex trading is carried out via the Internet using a special program installed on your computer or other personal devices. This makes it possible to trade from any place where there is access to the Internet.
Forex – an interesting trading process
Currency trading in the Forex market is an interesting activity that makes you constantly keep abreast of all international news and deepen your knowledge of the market.