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An Introduction to the FX Markets
Forex or FX is short for foreign exchange. The Foreign exchange market is the place in which currencies, such as the; yen, dollar or pound are exchanged for other currencies at a given price; the exchange rate.
Millions of currency exchanges happen every day. In fact it’s been reported that 5 TRILLION US Dollars is now traded every single day, making FX the biggest market in world by a long shot!
Whether you make an exchange purely to purchase a good or service with a different type of currency, or you are trading to make a profit, all transactions occur online between networks all over the world instead of on a centralised exchange, such as the LSE.
How Can I make Money On the Forex Market?
This is what I will be teaching on this blog over the coming weeks. Elite Forex Trading is a site designed to tell you how to make money even if you are a beginner, as easily and quickly as possible, this is why we specilise in automating the trading process, using robots, softwares and only on trading platforms that allow almost instant transactions. Becoming a professional fx trader isn’t an easy task, but if you absorb the information on this blog I’m sure you will find your feet and be able to earn a full time income within 1 year of trading.
What is Leverage in Forex?
Leverage is additional “trading amount” usually in the ratio or 100:1 or 200:1 that potential investors can acquire to increase the profitability of their trades. Leverage can allow traders to earn 100 times more than if they had just traded with their original investment amount. The video below perfectly shows what leverage is and why it is so advantageous.
FX Trade Example
An example of how money is made in a forex trade is below. It’s also important to remember that during a trade you are only ever trading on the relative value of a currency and not its actual worth. Another good example is situated here.
1. A trader deposits $1,000 (we use US Dollars for the example) into a trading account of their choice (recommended account).
2. If you choose a leverage level calculate your “usable investment”. For example if you had a 100:1 leverage you’d have 100 times more to invest. So now your $1,000 is worth 100,000 dollars.
3. Next the individual decides to buy Euros predicting they will increase against the dollar. $100,000 as of March 2015 the price of the dollar to euro is: 0.9395 and hence the trader receives (100,000 x 0.9395) = 93,950 Euros.
4. 1 week later the individual wants to bank a profit as the dollar to euro price has moved to 0.920127 and hence sells the €93,954 to return: (93,950 / 0.9375) = $100,213 (minus the original investment of $100,000) = a profit of: $213. 21.3%
5. Due to the leverage of 100:1 the individual was able to make a huge profit off a relatively small movement in the currency price. (Although please note this is just an example trade, there is some terrible money management going on here and not what we teach on Elite Forex Trading at all. For more on this go to the money management post.
What is a FX trading platform?
A Forex trading platform is simply a piece of software (usually a company) such as Etoro that allows you to make currency exchanges almost instantaneously. These are also referred to as brokers, but they simply allow you to make trades within the market. That’s the easiest way to look at them. These softwares can vary in terms of fees, bonuses offer, displays, interfaces, support and pretty much everything you’d expect to vary from company to company. Check out our list of the top fx trading platforms here for more information on platforms.
Short term (day trading) vs Long term trading?
We’ve written a ton about the difference between day trading and longer term trading. Personally if you are a beginner I would recommend looking into long term trading first and then simply working your way up through the timeframes (or down) depending on your need. Some people only trade the daily and make a lot of money from reading this price action correctly. Other individuals prefer to look at the 15 minute charts and try to make quicker profits, but as you have a SPREAD from a broker it is a lot more difficult to do this. If you want some more information on this, check out this post.
What is a PIP?
The video below perfectly describes what a PIP is and how to calculate its value:
PIPs are generally how individuals and professional traders measure their profits. A profit per PIP for a part time low level trader might only be 1-2c but for larger companies or corporations a PIP can equal thousands. It all depends on how much you are looking to start with and your risk management. Measuring profit in PIPs though, does allow us to see how profitable a particular trader is in regards to their bankroll and not in purely monetary terms. This is advantageous when we want to see who really has a good strategy and who (95% of time) is just a scam artist.
With the right training and trading strategies, and investing in specific currencies at the right times Forex trading can be incredibly profitable. For more information feel free to browse the website and contact us if you have any questions.