For those unfamiliar with the term , FOREX ( foreign exchange market ) , refers to an international exchange market where currencies are bought and sold. Foreign Exchange Market that we see today began in the 1970s when they were introduced free exchange rates and floating currencies . In such an environment only participants in the market determine the price of one currency against another , based on supply and demand for that currency.
FOREX is a somewhat unique market for a number of reasons . First, it is one of the few markets in which it can be said with very few qualifications that it is free from external control , and that it can not be manipulated. It is also the largest liquid financial market , with trade reaching between 1 and 1.5 trillion U.S. dollars a day . With this much money moving so fast , it is understandable why one investor will find it almost impossible to significantly affect the price of a major currency . In addition, the liquidity of the market means that unlike some rarely traded stock , traders are able to open and close positions within a few seconds as there are always willing buyers and sellers .
Another unique characteristic of several money market FOREX is the variance of its participants. Investors find a number of reasons for entering the market, some as long-term hedge investors , while others utilize massive credit lines to seek large short term gains . Interestingly, in contrast to the blue chips , which are usually most attractive only to the long-term investor , the combination of rather constant but small daily fluctuations in currency prices , create an environment which attracts investors with a wide range of strategies .
How does Forex
Transactions in foreign currencies are not centralized on an exchange, in contrast skazatNYSE , and thus held around the world via telecommunications . Trade is open 24 hours a day from Sunday afternoon until Friday afternoon (00:00 GMT on Monday to 10:00 pm GMT on Friday ) . In almost every time zone around the world, there are dealers who will quote all major currencies . After deciding what currency the investor would like to purchase , he or she does this by using one of these dealers (some of which can be found on the Internet ) . It is common practice for investors to speculate on currency prices by getting a credit line (which are available to those with capital as small as $ 500) , and significantly increase their potential gains and losses . This is called margin trading .
Margin trading is simply the term used for trading with borrowed capital. It is attractive due to the fact that in FOREX investments can be made without a real money supply. This allows investors to invest much more money with less money transfers , as well as large open positions with a much smaller number of actual capital . Thus , it is possible to conduct relatively large transactions , very quickly and cheaply , with a small amount of initial capital . Margin trading in the forex market quantitatively parties. The term " lot " refers to about $ 100,000 , an amount which can be obtained by placing as only 0.5 % or $ 500 .
Example: You believe that signals in the market indicate that the British Pound will go up against the U.S. dollar . You open 1 lot for buying the pound with a margin of 1% on the price of 1.49889 and wait for the exchange rate to climb. At some point in the future, your predictions come true and you decide to sell . You close the position at 1.5050 and earn 61 pips or about $ 405. Thus, the initial capital investment of $ 1,000 , you've made a 40 % profit. ( Just as an example of how exchange rates change throughout the day , with an average daily change of euros (dollars) is about 70 to 100 points . )
When you decide to close a position , the deposit sum that you originally made is returned to you and calculate your profit or loss is done. This gain or loss is credited to your account .
Investment Strategies : Technical Analysis and Fundamental Analysis
Two main strategies in investing in FOREX are Technical Analysis or Fundamental Analysis . Most small and medium-sized investors in financial markets use technical analysis. This technique is related to the assumption that all information about the market and future changes in a particular currency is in the price range. That is, that all the factors that influence the price is considered by the market and thus reflected in the price . In fact what makes this type of investor base his / her investments on three basic assumptions. These include: the movement of the market considers all factors , that the movement of prices is purposeful and directly connected with these events , and that history repeats itself . Someone using technical analysis looks at the highest and lowest prices of currencies opening and closing prices and volume of transactions . This investor does not try to outsmart the market , or even predict major long term trends , but simply looks at what has happened to that currency in the recent past , and predicts that the small fluctuations , as a rule , is still the same as they have before .
Fundamental analysis is one which analyzes the current situation in the country currency , including such things as its economy, its political situation , and other related rumors. By the numbers , the economy depends on a number of quantifiable measurements , such as the interest rate of the central bank , national unemployment rate , fiscal policy and inflation. Investor can also anticipate that less quantifiable events, such as political unrest or transition will also have an impact on the market . Before all the predictions based on certain factors , however, important to remember that investors must also keep in mind the expectations and the expectations of market participants . For as in any stock market, the currency's value is also largely based on perceptions and expectations of the same currency , and not only on its reality .
Earn currency on FOREX
FOREX investing is one of the most potentially rewarding types of investments available . Although, of course , the risk is great , the ability to conduct margin trading on FOREX means that potential profits are huge compared with the initial capital investment. Another benefit of FOREX is that its size prevents almost all attempts by others to influence the market for their own selfish purposes. So when investing in foreign currency markets one can feel quite confident that the investment he or she does have the same opportunity for profit as other investors throughout the world. While investing in FOREX short term requires a certain degree of diligence , investors who use technical analysis can feel relatively confident that their own ability to read the daily fluctuations in the currency market are sufficiently adequate to give them the knowledge they need to make informed investment.
By Rich McIver