Forex Made Easy
Do to its recent popularity, many people are showing an increased interest in Forex. As with any investment, these is a certain level of risk involved when investing. Fortunately Forex is fairly simple, as long as you have money to invest. Regardless however, it would be wise for any potential investor to educate themselves as best they can before getting involved.
The Internet has surely revolutionized the investment industry, and it is no secret that trading in the Forex market can contribute to a person’s financial future . A potential investor can learn just about everything he or she would like to know by simply reading material, tutorials, watching videos, and even downloading the required forms all from the comfort of their own home. However many people find themselves becoming confused at some of the finer points of Forex. There is a great deal of technical data, technical jargon, and generally confusing information on the internet.
Historically Forex trading was reserved for individuals, corporations, or banks that could afford to deposit a large sum of money at any time. However due to globalization and technology, nowadays the small investor has a chance to trade in the market as well.
The Forex market can be classified as an over-the-counter (OTC) industry, meaning the engaging parties make agreements over an electronic network (such as the internet, or a phone line), with no centralized trade route like the stock market has. There are however a handful of locations that hold the bulk of transaction shares. These places include Tokyo, New York, London, Frankfurt and Zurich. These trading centers are strategically placed in major time zones, allowing for the Forex market to engage in trading 24 hours a day, Monday through Friday.
Forex works slightly differently than conventional exchange markets. Instead of trading goods or stocks, you are trading the values of major world currencies against each other. Currencies are traded in pairs, and their values are constantly in a state of flux throughout the day. Once the trade is complete, the profits are taken from the difference in the currencies exchange rate. Let’s look at an example. If the Euro is (at this point) more valuable than the US dollar, and investor might buy a large amount of Euros. When that individual believes the Euro has reached its maximum value, they will then sell the Euros and make a profit. As a general rule, you are buying at the currencies cheapest point, and selling at the currencies highest point.
There are two main numbers when looking at currency quotes in the Forex market. The first number is the bid, and the second is the offer. For example when looking at the Euro/USD pair you might see 0.9850/0.9950, the first number is what traders are willing to pay for the Euro (against the US Dollar), and the second price is what traders are willing to sell the Euro against the dollar. The difference between the two numbers is called the speed, which is essentially your profit per unit. If you hired an investor, they would take a percentage of the spread.
The Foreign Exchange Market is a highly volatile one, and in order to succeed an investor should have a vast knowledge of the industry. This includes not only the trading mechanics, but adequate knowledge of the factors that affect currency exchange rates. Knowledge in this industry is everything, and it is the major factor behind success and failure.