Investing in Forex : Basics
The foreign exchange or Forex market is the World’s largest financial market.The Forex market play’s a vital role in the global economy everyday.Trillions of dollars are exchanged from one currency to another.
Currency Exchange is essential foe international business and the Forex market make’s this happen. Forex market participants include governments, businesses and of course investors.Government use the forex market to implement policies for example when conducting business with another country whether it’s borrowing money, lending money or offering aid a country needs to covert it’s currency into another foreign currency.Businesses can be part of Forex market to facilitate international trade.Business require Forex market convert payment’s for good’s and services bought overseas or to exchange payments from international customers into their preferred currency and advance investors use the forex market to speculate on currency prices.
Currency Price Changes
currency price changes almost constantly during the week because the Forex market is open 27 hours a day excluding weekends.During the week it has to open around the clock because of the global nature of the economy.
Investors profit when they buy a currency and it’s price increases.Investors can also sell or short a currency in anticipation of price decreases.Currencies trade in two pairs which mean the value of one currency is always stated relative to another currency the two sided nature of pairs is a little bit confusing at first but in practice it’s quite simple.Let’s looks at an example trade using Euro/Us dollars currency pair
Let’s suppose that an investor thinks that Europe economy is going to grow faster than USA and as a result he that the euro will strong against USD.he can buy the Euro/USD pair to speculate on his assumption.If the pair rises he will make money conversely if pair falls he’ll experience a loss.
Investor’s buy and sell currency pair using margin.The process of buying and selling investments with margin is much differ than buying or selling an investment like a stock.
What is Margins:
Margin is borrowed money used to purchase securities in margin account.The amount of margin you’ll need varies between currency pairs and the size of a trade currency.Pair is typically trade specific quantities knows as Lots there are several different lot of sizes , but the two most common are standard and mini.The margins require the mini Lots they are usually $100 and standard lots are around $1,000.These margins might seem like small dollars amount but it’s important to understand that the Lots are highly Leverage.