What is Forex?

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FOREX stands for FOReign EXchange.Currency traders make money simply buying and selling foreign currency.They make their profits based on the movements between currencies.




Another way to make money on the internet is using the FOREX Market.This is simply taking advantage of the fluctuations in the value of foreign currencies compared to each other in order to make a profit.Find out more about Forex below.

Forex (Foreign Exchange) is the biggest financial market which turnover exceeds $1.5 trillion. There is no possibility of shaking the market by individual investors. Transactions at Forex can be realized daily, 24hours a day – in practice, most of the transactions are made between 8 am on Monday and 6 pm on Friday – transactions made at weekends and holiday are often connected with higher fees and much smaller profits (losses) possibility. SPECIFICATION OF THE MARKET Forex is a specific market in many aspects - first of all, it is very highly speculative (it is estimated that about 90% of the transactions are made by speculators). Moreover, there is neither bull market nor fall term, because profits can be made on both growth and drop of exchange rate (currencies can be bought and sold on the same conditions). Information has great influence on the market – that is why many try to bet only in the publication period – exchange rate increases or decreases rapidly then. Technical analyses have raison d'e^tre, but due to numerous financial publications, these are not as accurate as on other financial markets. TRANSACTIONS AND LEVER The most of bets are time limited contracts, so called “Lots” – one contract is one “Lot”. Currency market is also characterized by high financial lever. It means that if you have certain amount of money you can use much bigger amount and receive profits/losses from this higher greater. Example: Lever is 1:100 (you can bet with 100 times greater Money). Assuming that you have $1.000 – you can buy $100.000 for this money. If the exchange rate increases of 0.5% we will profit by $500 (0.5% x $100.000 = $500). If the rate decreases of 1% you will lose your whole capital (1% x $100.000 = $1000).

The size of the lever depends on brokering agency that we choose. There is sometimes the possibility of choosing “risk group” that we want to belong to.

BASIC INFORMATION AND TERMINOLOGY You can bet in any pair of quoted currencies on Forex. These are announced in this form: EUR/USD (Euro to Dollar – the most popular pair on Forex), USD/JPY (Dollar to Yen). This form of notation means that for one unit of base currency (EUR or USD in examples) we can buy as many units of second currency as the exchange rate is. The rate is always announced with accuracy of four decimal places (Yen is the only exception – exact to two decimal places). Example: EUR/USD rate is 1.3115 – for €10.000 you can buy $13.115. CHF/PLN rate is 2.5371 – for CHF100 you can buy PLN253.71. On Forex, the rate is always given in two ways – buying rate (Ask) and selling rate (Bid). Buying rate is always bigger than selling rate, the difference between these rates is called the spread. The spread is given in pips (Price Interest Point) – ten thousandth part of rate (one-hundredth for Yen). It will be more comprehensible in an example: Selling rate (Bid) EUR/PLN pair is 3.9078, while buying rate (Ask) is 3.9128 – spread is the difference between these rates and amounts to 0.0050 that is 50 pips. It often occurs that spread is enlarged by brokering agency for holidays and weekends and making the transactions is becoming less attractive. The spread is the only form of “fee” from transactions, what is another typical feature of currency market. HOW TO PLAY? For the sake of high risk of currency market, it is not recommended for beginners. To start investing you should be experienced in short-term speculations on the stock exchange and have at least basic information about technical analysis. If you are firm to start investing on the Forex you should constantly monitor economic news (brokering agencies usually offer comprehensive news bulletins – for example Reuters) and keep abreast with these publications dates – the news can shake the market a little bit and it might be a shock for beginners, which many times can end with a huge loss. It is said, that short-term transactions are made for coupe of hours, and the long-term is few days only! Popular on stock exchange “buy and hold” method is not profitable here and can end as the loss of the capital. The other significant thing on Forex is investors psyche – your future profits or losses depend on whether you can or cannot stand the rapid unfavorable loss/growth of the rate. The general rule is setting Limit orders on much higher level then Stop-Loss orders. You should assume higher profits then losses. There are also other methods to bet on the Forex, as already mentioned publication betting – when we wait for the publication, analyze the news and enter the market, to end the position shortly. Earlier acquainting with investing platforms of different brokering agencies is a good idea – so called demonstrative investing platforms (called also demo platforms) offer almost all important brokering agencies. You must remember – although the demo and real platforms does not differ in technical respect; the decisions made on demo platform differ significantly from those you would make in reality; unless you have strong nerves – but all of us would be millionaires then.






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