Forex investment | currency trading basics

Forex investment in the present world has become a widely popular investment opportunity. I remember, even five years ago, a word "forex" would mean nothing to a common man, and after explanation (foreign exchange currency market) people would still ask questions like these: "so, you are in the stock market?" Well, no, forex trading is not a stock market, but the principals and the basics are mostly the same.

If you bought some Apple stocks in the stock market and after some good news release the stock price would climb up - you would most probably sell it. The difference between the price that you bought and sold would be your profit. The opposite is, when you suffer some money loss, after buying some stocks that went down in price after a few days or months. If you bought, say, one stock for four dollars and after one month it is worth only three dollars, you have two choices:
1. Run out of the falling market and sell it now, so your growing loss will be stopped and you will only have 25% drawdown to recoup.
2. Keep waiting, hoping the price will go up again and you will be able to sell for more than you bought. This second choice has one looming threat - you could loose even more money, because you do not know how long the price is going to fall and most importantly, how deep is the fall. The stock unit could go down to half the price that you bought and you will be loosing already 50% of your money invested.

Forex investment principals are almost the same, only you are able to trade currency pairs - one nation‘s currency against the other nation‘s currency and you can do that 24 hours per day, 5 days a week using forex software programs. Let's take for example EUR/USD currency pair which has the 1.24 price. This particular price means that 1 euro is worth 1.24 dollar. If I expect the EUR to rise in price against the USD in some time period, I will buy, let's say, 500 euros for 620 dollars (500 times 1.24 equals 620). If the dollar gets cheaper in relation to EUR (EUR gets more expensive) and the price reaches 1.25, I could sell my 500 euros for 625 dollars (500 times 1.25 equals 625) and keep the price difference or the profit of 5 bucks.

There are a few kind of attractive things that make forex investment even more gripping. First one is leverage, which enables you to trade with much more money than you really have, the rest is provided by the broker.

The most popular forex investment account leverage ratio is 1 to 100, meaning that with, let’s say, 1000 invested dollar you can trade with up to 100000 dollars from the broker.
Operating with 100000 units is mainly done in the so called standard forex account; you could even choose to trade with more forex funds – 500000 or even 1000000 currency units. One drawback of this standard account is your limitations – you only trade with currency lots starting from 100000 units or more and you cannot choose to trade with less money. Your smallest invested sum must be from 1000 or 2500 dollars. The smallest fluctuation while trading just one standard size lot could mean huge profits or losses.

Forex mini account
However, for those who wish to invest less, there is a smaller investment account – mini lot trading account (mini account), which lets you to buy mini lots of just 10000 units – respectively you will invest less money and the currency market change would bring less profit or loss.

Forex micro account
Well, even if you cannot invest more than 100 dollars, there are forex brokers offering to open micro accounts – then you will be able to invest just 1 dollar – I believe that’s affordable to everyone.

Managed forex trading account
If you don’t have much time to do all the analysis, placing orders and trading yourself, you could as well invest your funds into a managed forex trading account. In this case your assets will be managed by a professional forex trader, except that you will have to share your profits with him.

 Another superb point, which excels forex trading against other kinds of investing ventures, is profit in both rising and falling markets. Let’s take an example:
EUR/USD is falling – meaning EUR is depreciating against the USD currency and if you buy USD and sell EUR – you’re in profit. If you take the opposite currency pair movement – EUR/USD is rising – buying the EUR currency against the USD could also mean profit. I suppose, there is no need to mention, that you only have to choose the right currency, otherwise it will be just your money loss.

The last, but not the least is a forex broker fee or charge for trading. Best forex brokers take only from 1 or even less pips (the smallest quoted change of an exchange rate of a currency pair) for every trade and that just a fraction of what you could earn or loose.
Those are just the basic issues in forex investment. If you want to know more - please visit my other articles.