Few investment types have the great risk, or earning potential of the forex market. Few, also, are more difficult to understand initially. The concept of the forex market is the buying, and selling, of one currency against another. If you still don't understand you aren't alone but here's an attempt at simplifying the immensely complex functioning of this market.
Different currencies exist, including the US Dollar, Canadian Dollar, Euro, British Pound Sterling etc. These currencies change in value every day according to a number of factors such as inflation in the country. Foreign exchange is required, by which a monetary amount of one currency is exchanged for an EQUIVALENT (not equal!) amount of another currency. An exchange rate, that fluctuates constantly, is used to determine the equivalent value, and it is this rate that is used as the basis of investment in the forex market.
Now that we understand the fundamentals, this is what actually happens when you execute a forex transaction. You will notice that, on any trading platform, you are given "currency pairs" to choose from. An example would be the US dollar against the Euro (USD/EUR). If you elected to "buy" this pair, you are effectively investing in the expectation that the US dollar will strengthen against the Euro, based on going exchange rate. Conversely, should you elect to "sell", you would be investing in hope of the Euro strengthening against the US dollar. This is the basic of every forex transaction.
When you execute such transactions, your platform usually does the complex work on your behalf, involving exchange of funds between international accounts of varying currencies - far too complex for the scope of this article. What this intends to focus on is how forex can help, or hurt, the average investor.
The forex market differs from all other markets in that a relatively small amount of money can create great wealth very quickly. This is because forex transactions are done "on margin", allowing users to, effectively, invest far more money, than they actually have, into a currency pair. Similarly, they can claim the profits of such a heavy investment. It is not uncommon for huge profits to be made is seconds.
The flip side is that dramatic losses can occur just as quickly. The forex market has a reputation for being very high risk and only attracts a certain type of investor - those that enjoy the thrill of such invesment and the fantastic possibilities for financial gain. Modern software has made it possible, however, to preset the amount of money one is willing to lose before bailing out of a transaction. Investors are advised not to set this figure higher than what they can afford to do without.
The forex market has high potential to give, or take, great wealth and can be a very lucrative investment, probably the most lucrative of all types, for those investors up for the risk. There are companies that offer simple software that can get investors started on this prospect.
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