Exchange Rates & Values
Foreign Exchange Rates and Forex Trading
Forex exchange rates may be calculated in real time in order to establish the rate at which one currency will be exchanged for another currency. For example, if 91 Japanese Yen equates to US$1, then for every $1 invested, the investor will receive 91 JPY.
If the Japanese Yen depreciates in value compared to the dollar, then the US$1 will be able to purchase more Japanese Yen for US$1. This means that the investor with USD will earn a profit from their investment in the Japanese Yen. If the number decreases in value, the investor will lose money.
How Does the Forex Market Work?
Investors realize gains by capitalizing on conversions from one currency to another. For example, the Forex market allows businesses to import British goods and pay in British currency instead of paying in US dollars.
Currency exchange pairs are purchased by investors. Investors make money by the movement of one currency against another. When one currency in the pair increases or decreases, investors make a profit from the difference. Investors must properly predict the direction of the movement to make a profit.
Because the Forex market does not experience significant volatility, investors receive leverage to improve their ability to make money. For instance, investors may receive as much as 200:1 leverage from their investment. Other leverage options are 50:1 and 100:1.
For example, to trade $100,000 of currency at a margin of 1%, the investor needs $1,000. This gives the investor the opportunity earn profits on $100,000, but they only invest $1,000. This type of leverage is 100:1. Leverage of 200:1 is typically reserved for $50,000 or more.
Leverage is essentially a loan that is provided so that participating in the market is worth the investor's time. Without leverage in Forex, investors would need several million to recognize significant gains. With leverage, investors can make the same amount of money with thousands that they would if they invested millions.
With a 200:1 leverage, customers can invest $500 and receive access to $100,000. Experts call this a 0.5% margin. A 100:1 leverage will require $1000 for $100,000. This would be 1% leverage. A 50:1 leverage is a 2% margin will require a $2,000 investment. While leverage can allow clients to earn a significant portion of money, they can also lose equally as much.
Can I Lose More than My Deposit?
Most brokers will guarantee that the trader will not lose more than they deposited into the account. This means that the investor will never suffer a sizeable loss and then owe money to their broker. The maximum loss is limited to the amount in the account. If the margin falls below the margin requirements, then the broker or trading station will close all the accounts to protect the investor from significant loss.
How Can Automated Forex Robots Help?
Automated Forex robots are often available to help unfamiliar investors trade passively in the market. Investors simply download the software and allow the algorithm to make the best guesstimates about when to enter and exit the market. Clients simply check their profits to determine how their portfolio is doing.
Many people wish to take advantage of the exchange rates and invest in foreign currencies. Currency exchange is different from trading in stocks. The leverage in stocks is 1:1, because the volatility is fairly high. This means that the investor has more opportunity to take advantage of the huge swings in the market. The swings will help clients earn more. By contrast, Forex investors hope to profit off movements of 1 pip or less.
What are the Most Popular Currency Pairs?
The three strongest currencies are the United States Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). These countries are most often paired against one another for profits. Many investors earn money from the USD/JPY.
Until the recent global crisis, this pair was fairly strong. Investors must be aware of the political climate and other current events in order to successfully predict the correct time to enter and exit the market. This requires real-time streaming news, if the trader is not using a FX robot.
Professional advice should be sought regarding all financial services. These can be obtained from financial advisors and planners, accountants and tax professionals.