Understanding the Forex Market

It is a very simple and at the same time a very complex market, simple in that you could define it as the exchange of one currency for another during a period of change in which the currency you made an exchange for either increases or decreases in value against the one you used to purchase it. Of course the value of currency doesn’t change a whole lot (under 1 percent in a day typically) when compared to stocks, bonds, etc . . . So how do you make money by trading in Forex? That is where the complicated elements of defining it begin, and go on for a very long time.

It all begins with leverage, if you were to take $ 1000.00 and invest it for a return of .0025 percent that would be a profit of $ 2.50. What this means is that you’d have to invest a whole lot more money to ever see any profit that really makes gluing your eyes to charts worth it. This is where leverage comes in. A recent regulation in the US stipulates leverage can only go as high as 50:1 (before the regulation it was limited only by the prerogative of the broker, but no longer), meaning that if you give your broker $ 1000.00 they add another $ 49,000.00 to it and so now if you see that .0025 percent profit your $ 2.50 becomes $ 125.00 and so on, of course your broker will take a cut but even if you only take a total of $ 100.00 an hour well . . . you get the idea.  As I said before however, I have only begun to address the often maddening complexity present in the online Forex exchange, international currency exchange also brings about the numerous aspects of one country’s currency being bet against in favor of another.

There are many things which can influence the value of currency which can include (but are not limited to) employment rates, interest rates, current events (of all sorts), and so on. So while taking in and understanding the data from these events is crucial it is not the sum total of a solid decision making process by any means. Knowing when to get in and when to get out, having a solid stop loss and always remaining versatile is key to success in the Forex market. Of course everyone will put their own spin on things, have a “system” which suits their earning goals and personality.

The author is a Forex trader and financial analyst residing in Denver, Colorado.  To stay up to date on all the latest developments in the financial world and beyond be sure to stay up to date with the latest forex quotes.

Leave a Reply

Your email address will not be published. Required fields are marked *