People have two main perceptions about Forex. Some people think that is a synonymous to scam and it a quick way to lose your hard earned money in a few months. Another group of people think that it is the other way round! They dream of quickly multiplying their money using Forex. However, Forex does not seem to fit in either category. Forex, simply defined is trading platform, where traders can exchange Forex currency. This means that if you are from US and have USD and if another person is from Japan and has Japanese Yen and both traders want to have each other currencies, then they can exchange their respective currencies as per market rates or mutual agreement.
That was a simple explanation of Forex for you. Some people have a misconception that Forex trading is much like gambling in bcasino.co.uk or any other big casino site. However, this system is much more sophisticated and dynamic that what it reads from the theory. The Forex market is world’s largest trading market with multi trillion net exchanges going every day. The market is open 24 hours a day and lots of people earn and make millions from it every day.
A quick History of Forex
Earlier, Forex was ruled by US Dollar. British Sterling Pound too was and still is a valuable currency in Forex Market. In the past decade, Euro has entered the market and it has adversely affected British Pound, which had indirectly helped to strengthen US Dollar in international arena. However, Pound still remains stronger in terms of market value against both USD and Euro. With development of Japan after the second world war, Japanese Yen too has shown its presence felt in the Forex arena. Other Asian and African currencies are not in commanding position at present.
The aim of all the trades is but making profit and the same is true for Forex as well. In any commodity trading, you buy a commodity for a price which is called its Purchase Price and you sell it at another price, which is called its Sales Price. As a trader you would obviously like to make some profit on every sale and for doing it, you have to make sure that you sell the commodity at a higher price than you have purchased it, i.e. the Sales Price has to be more than the Purchase price and the difference is your profit.
However, if for any reason, you are not able to sell that commodity at a price higher than its purchased value, then you make loss in that trade. The same is true with the Forex System as well. The only difference here is that, in Forex Trading, instead of commodity, you deal in different currencies. These currencies are international currencies of different countries and their price keeps on fluctuating at frequent intervals, in fact they keep changing every minute. If you sell a particular currency at a higher price in which you have bought it, then it’s your profit and if it goes the other way round, then you accumulate loss.
How it works?
The Forex System is a very sophisticated system and involves millions of permutations and combinations along with high manipulation going all the time in the market, which makes it difficult to sketch out a error free algorithm of how exactly the market is going to behave on any particular day. However, if you deal with it every day and are used to market trends, then you can predict the market behavior in a fundamental way. This dies not mean that there is a sure short formula for Forex System which will hit the bull’s eye every time. All it means is that if you have an experience in the market, you are more likely to understand the pulse of it and are better placed that someone who either has no experience in it or cannot hold his nerves at the right time.
The risk involved in Forex Trading?
You might think that Forex is a high profit game and therefore, as a rule, it involves higher risk. However, in actuality both things are only partly true. First of all, Forex is no different from any other trading business and therefore, you can earn or lose money in it in an almost identical way, that you would do in any other trading business. Fundamental wise, there is not much of a difference with trading of any other kind and trading with Forex. So, then what exactly is the risk factor involved in Forex Trading? Let’s find out …
Risk is a part of every business. In fact risk is a part of life as such. Even if you are working as an employee, you still risk the faith of the company in which you work. If things do not go well with the company in the next few months or years, the risk of it being going bankrupt is always on cards. This is no joke either. We have seen big multinational companies, who have enjoyed highest rank in their field during their peak time to into drain in time of blues. A couple of big moves gone wrong with the management are enough to ruin the hard of years within a few months. The same is true with Forex Trading as well.
The risk factor is Forex Trading is as much as your discretion capabilities. It’s you who are responsible for your acts. After all, it’s your money at risk. So who other than you would decide how to trade with it? Of course, you can take advice from the experts, can use robots and software to get the stats right, but ultimately it’s you who has to take the final decision. This is true in all forms of business. So, we can say that Forex Trading is no different from any other business or the risk factor too is only as much as you will have in any other form of trading.
To Sum Up
True, that the Forex market gives you a lot of stress, probably more than what a routine job work or business would do, but then every trade has got its Pros and Cons and this does not make Forex Trading exclusive. Risk Factor too is a part of every business and therefore, a more positive approach towards Forex would be to accept this risk factor as a part of business and live with it.