Friday, November 27, 2009

Forex Trading

The investor's goal in Forex trading is to profit from foreign currency movements. Forex trading or currency trading is always done in currency pairs. For example, the exchange rate of EUR/USD on Aug 26th, 2003 was 1.0857.

This number is also referred to as a "Forex rate" or just "rate" for short. If the investor had bought 1000 euros on that date, he would have paid 1085.70 U.S. dollars. One year later, the Forex rate was 1.2083, which means that the value of the euro (the numerator of the EUR/USD ratio) increased in relation to the U.S. dollar. The investor could now sell the 1000 euros in order to receive 1208.30 dollars.

Therefore, the investor would have USD 122.60 more than what he had started one year earlier. However, to know if the investor made a good investment, one needs to compare this investment option to alternative investments.

At the very minimum, the return on investment (ROI) should be compared to the return on a "risk-free" investment. One example of a risk-free investment is long-term U.S. government bonds since there is practically no chance for a default, i.e. the U.S. government going bankrupt or being unable or unwilling to pay its debt obligation.

The market Time: - the market is open 24 hours a day, Sunday to Friday every week, this gives the trader the freedom to work at any time without having to be restricted with opening/closing time as it is a fact in other monetary markets.

The completed transactions:as soon as the trader makes the transaction the deal is completely done with the displayed price at the time, this means that the deal is done at once and not broken into parts which can vary in price as happens in other monetary markets.

The margin system: - using this system enables the trader to make deals the exceeds his/her capital with a percentage of 1 : 500.

The trader should choose a good broker that can provide him/her with all the necessary technical tools to achieve successful trading. The broker should not overcharge the trader or enlarge the difference between the demand/ sale prices.


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