A Beginner’s Guide to FOREX
FOREX, an abbreviation for the Foreign Exchange market, is basically an international exchange market where currencies from all over the world are bought and sold for profit. This market began in the 1970’s. FOREX is a very unique market because it is not based in any particular place, and it also has very few qualifications for investing. FOREX is also free of external controls, and the investors (participants in the market) largely determine how much a currency is worth based on demand. Almost anyone can invest in FOREX, and there are strategies for investors who want to have long-term gains, and strategies for investors who desire short-term gains. The vast array of investors makes FOREX quite unique in the financial community.
The FOREX Marketplace
FOREX is not centered at an exchange like the NYSE. FOREX trade goes on 24 hours a day from Sunday afternoon to Friday afternoon. So FOREX transactions can take place at almost any time, anywhere, all over the world. FOREX dealers are located in almost all time zones, and it is simple to find most of them online. An investor simply decides what currency he/she wants to purchase, contacts the dealer, and then makes the purchase. Many investors purchase using a credit line (called marginal trading).
What is Marginal Trading?
Marginal trading is a term used for trading with borrowed capital. FOREX investments can be made without actually having the money in an account. The investor can borrow the money for a certain currency. Naturally he wants to choose a currency that will increase in value quite rapidly. Once the currency increases, the investor pays back the money he/she borrowed and makes profit without putting cash out. This is a high-risk investment, but the rewards are great (as with most high risk investments).
Two Methods to Analyze Your FOREX Trades
FOREX traders often have to analyze the market. Like all investments, FOREX involves a certain amount of calculated risk. Two ways to calculate these risks are though Technical Analysis and Fundamental Analysis.
Technical Analysis is based on the idea that trends through history will continue. A FOREX investor will notice that a certain currency is very strong and seems to be rising at a normal rate. The same investor will also suppose that the currency will not decline in value, and will continue to rise, as it has done in the past. The investor then purchases a large amount of that currency and expects to make a profit. This investment entails a large assumption but is often relatively safe.
Fundamental Analysis is an analysis of an entire country's situation. Investors utilizing this technique look at the situation of the country in which the currency finds its base. Factors such as the country's economic status, political status, and global status are taken into account. For example, a Fundamental Analysis investor would not invest in currency from a country that just overthrew its leader and is in political shambles. Although this investment seems logical, it does not take into account one of the fundamental elements of FOREX trading. FOREX currency values are largely determined by the investors. That being said, Fundamental Analysis assumes that other FOREX traders will view a country's situation in the same way and respond accordingly.
Benefits of FOREX
FOREX can be very rewarding to a variety of people. FOREX trading can gain investors a large amount of money either over a an extended duration, or in a short period of time. Investors who choose to invest in FOREX are generally well informed about the market and understand the current situations in many countries around the world. Investing in FOREX is fairly simple and is practised by anyone who wants to reap profits from solid investments.
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