Forex currency trading is booming around the world and is quickly becoming the preferred choice of many online and offline investors, but what is Forex and how can you get involved in this attractive new investment arena.
First of all lets explain what Forex actual stands for and what it involves.
Forex stands for Foreign Exchange and is the trading of one currency value at a given time in relation to another currency value, so you are trading in the market of money or cash.
The Forex market is also known as the bull market or spot market.
Similar to trading stocks where you buy a particular stock at a given price and then anticipate the value of that stock increasing in value so you can realise a profit on your investment, traders in the Forex buy and sell units of currency.
A unit of currency that you intend to trade in is called a "lot" and is equivalent to $10,000 in a mini traders account and $100,000 in a standard or 100k account.
When trading currencies you are required to open an account with the Forex broker and make an initial deposit into what is called a margin account, this is because you do not actually pay instantly for the full cash value of your currency but do deals by use a leverage of multiplication on the money you invest.
Movement of a currency value is measured in units called pips, for instance if the value of the British Pound against the Dollar was 1.8720 and it moved in the Forex market to a value of 1.8721 this would be a one pip movement.
A mini traders account usually works on a leverage of 10 to 1, whereas a standard traders account works on a leverage of 100 to 1, meaning that on a mini traders account for each pip move on your currency lot either upwards or downwards you would be either making a $1 profit or losing a $1 off your account balance.
In a standard account this same one pip movement would be either making you a $10 profit or a $10 loss.
The mini traders account is ideally suited for new or novice traders who want to try the Forex market and see if its investment potential is suitable for them.
An interesting aspect of the Forex market is that not only can you buy a lot of currency expecting it to rise in value but you can also sell a lot of currency first with the belief that it may fall in value, and as such you can then buy the equivalent to close the trade and realise a profit.
It should be realised that dealing in the Forex market is an investment strategy and markets can move violently in either direction, this gives the opportunity to make money but conversely you should be aware that you could lose money without proper Forex trading education and preparing a strict and sensible strategy.
Copyright 2006 Terry Till
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