Foreign Exchange (FOREX) is the arena
where a nation's currency is exchanged for that of
another. Due to the internet and online trading, the
retail investors are now getting sophisticated and
want to experiment trading the vast Forex market.
The Forex market can offer huge profit potential for
any investor who is willing to learn the skills of
trading this market. Forex is the simultaneous buying
of one currency and selling of another. The foreign
exchange market (FOREX) is the largest financial market
in the world, with a volume of over $1.3 trillion
daily; more than three times the aggregate amount
of the US Equity and Treasury markets combined. Unlike
other financial markets, the Forex market has no physical
location, no central exchange. It operates through
an electronic network of banks, corporations and individuals
trading one currency for another.
Forex Trading Advantages
Compared to trading the stockmarkets, the Forex
market offers many advantages. It is a 24-hour market;
therefore a trader can take advantage of all profitable
market conditions at anytime. There is no waiting
for an opening bell. The Forex market has high liquidity,
with an average trading volume of over $1.3 trillion
per day. It is the most liquid market in the world.
It means that a trader can enter or exit the market
at will in almost any market condition minimal execution
marries or risk and no daily limit.
The Forex market is so vast and has so many participants
that no single entity, not even a central bank, can
control the market price for an extended period of
time. Even interventions by mighty central banks are
becoming increasingly ineffectual and short lived.
Thus central banks are becoming less and less inclined
to intervene to manipulate market prices
Forex Trading Example
Many retail investors can spread bet on currencies,
with so many companies now offering online trading,
it has become very easy for investors to trade and
profit from this. Let me illustrate a simple trading
example. Let us assume that investors expect the British
pound to get stronger compared to the US Dollar, therefore
they may want to buy the Pound so that if the currency
moves up you make a profit, and equally if the currency
goes down - you lose!
Imagine the GBP/USD is quoted at 1.8220/25. So the
offer price is the higher on the quote which is 1.8225,
so you buy at the offer price, and sell at the bid
price which is the lower - i.e. 1.8220.
Because you expect the currency to go up, you make
a spread bet of say £10 per point and buy at
1.8225. Therefore for every point the currency goes
up, you make a profit of £10.00. Equally for
every point the currency goes down you lose £10.00.
In order for you to make this trade, you would normally
require a margin deposit of £1500
Later, if your prediction is correct and the British
Pound appreciates against the US Dollar, and now the
quote is 1.8255/1.8260. Therefore you will close your
position at the Bid price, which is 1.8255. You have
now made a profit of 30 points, which would be £300.00
profit in total - that is a 20% return on your capital.
Trading Forex carries a high level of risk to your
capital. Only speculate with money you can afford
to lose. These products may not be suitable for all
investors, therefore ensure you fully understand the
risks involved, and seek independent advice if necessary.
Jay Lakhani is a Full Time Professional Forex Trader,
and offers a training and consultancy service on Forex
Trading. Jay is also the author of a Forex Training
Manual "The Way to Trade Forex" This book
is available as an E Book and can be downloaded from
the internet. For more information contact Jay Lakhani