Beginners Guide to FOREX

What is FOREX?

FOREX (FOReign EXchange market) is an International exchange market where currencies are bought and sold.

How does FOREX work?

In almost every time zone around the world there are dealers who will quote major currencies. In general investors will aim to buy the currency believing it will rise in value against other currencies in the near future when they will sell at a (hopefully) profit. This is called a “Long Trade”. Alternatively a trader could try to profit on a “Short Trade” where they would sell high and buy low betting that the currency is about to fall in value.

Leverage is where the trader trades with borrowed capital so they can afford the lot (minimum unit for a transaction). The Trader can trade with lots (at usually 100,000 of the base currency, or 10,000 for a mini lot). The trader however will only have to put a deposit of usually between 1 – 4% to secure this lot for trading. This deposit is called the margin.

Most brokers will offer you leverage of 100:1 (but there are higher leverages available 200:1, 300:1 etc.). A100:1 leverage means that with you control 100 times your margin. For example with $1,000 you control $100,000 of currency. You don’t actually control $100,000 but you make and lose money as if you do. Therefore small changes in the currency value have a bigger impact on how much you make (or lose).

This means you can make (and lose!) large sums quickly although you can only lose the margin you put in ($1000 in this example)

For example you deposit $1000 dollars with leverage of 100:1 giving you control of $100,000. You believe the value of the British Pound will rise so you risk the full amount. Ten minutes later the Pound increases in value against the US dollar by 1%. If you sell at that moment you have made $1000. Not bad for 5 minutes work! Of course you could get it wrong and the Pound could drop in value by 1% and you’d lose your $1000!!

FOREX trading is a great example of a moneymaking opportunity that he Internet has opened up to everyone. You can start with a reasonably small deposit and a computer with an Internet connection. Great profits can be made but great losses can be made too all in quick time!

If you want to start in the FOREX world do lots of research and use the online demos that are available on many sites.