What is Forex and how to make money on it

The word "Forex" is on everyone's lips for quite a long time. Most of you have seen the ads offering to get easy money on favorable terms, or at least you heard hearsay stories of another millionaire who got rich due to the Forex trading. In addition, the Internet is full of constantly updating blogs dedicated to Forex trading, whose owners share the stories of their success adding sometimes the income reports for proof. I think it's time to figure out what is Forex and how to make money on it? Forex ("Forex" abbr. from the Foreign Exchange Market) - an international foreign exchange market. It works around the clock from 10:00 PM on Sunday to 10:00 PM on Friday (UTC + 10). The main participants in the foreign exchange market are investors, large companies and banks. But due to the advent of the Internet there is an opportunity to make money on Forex even for people who do not have huge funds. 

How to trade in Forex

We can compare money-making on Forex with the earnings on the exchange of currencies. In other words, this is the case when a person comes to the currency exchanger and buyes some currency hoping to sell it at a profit later. The only difference is that income with Forex trading is always much higher than the one of currency exchanger even with the same amount of initial capital.

All currencies in the Forex are divided into pairs: USD\JPY, GBP\USD, JPY\AUD, etc. And Forex income depends on the difference in exchange rates.

The first currency in the pair is called the “base currency”, and the second is the “quote currency”. The currency pair shows how much of the quote currency you need to purchase one unit of the base currency.

In Forex market each currency is divided into points (pips), instead of our usual cents and pence. In a currency exchanger you may see something like this: 1 USD = 93.20 JPY, in the Forex it might look like this: 1 USD = 93.2005 JPY. The need to split the money into smaller parts than, for example, cents, was triggered in order to avoid a huge gap between the potential profit and loss for the major players in the Forex market.

The value of each currency is influenced by many different economic factors, including the demand\supply for a particular currency, so it is frequently changing. If in a currency exchanger the price may change several times a day (in the most unstable political and economic circumstances), in the Forex market it may vary by 200-300 points within an hour even in relatively stable external conditions.

Then, we have the question: why you can make considerably more money on Forex than by means of the simple exchange of currency? The fact is that a broker provides a trader the leverage.

Leverage is the capital borrowed with aim to generate more income from the investment. It has nothing to do with a loan, which means you do not have to borrow money from a broker and then return it with interest.

Actually it means that having 1000 USD in your account you can trade 100 000 USD thanks to 1: 100 leverage. To put it simply, your initial capital increases by 100 times, and you get the opportunity to make a profit 100 times more. Thus, having only 1000 USD in your account, you can earn 2000-3000 USD in the Forex market.

But also there is a downside: the losses would be 100 times more as well. Hopefully it is impossible to go into the red in Forex, you will not loose more than you have in the account. Besides, the broker may set a critical level of losses (stop out) to have the trading closed at some moment. It helps to avoid the loss of all trader’s funds at the first unsuccessful price movement. For example, if you have 1000 USD at the account and stop out is 20%, you loose only 200 USD instead of 1000 USD.

How to start Forex trading

If you do not have experience in Forex trading it is better to find a good broker and not to play Russian roulette. Looking for a broker, as well as your continued cooperation, will take place on the Internet.

First you need to write the business proposal, then to open your trading account and to top up your account on a certain amount of money (from ten dollars to several tens of thousands).

Typically, the account is opened in USD, but you can choose another currency. Practically it doesn't matter, because if you want to buy EUR per JPY, you don’t need to have Japanese yens in your account. The Forex trading starts with buying some currency which you should sell when its price will rise. The main feature of the Forex market is that you make a deal on currency exchange without actual supply of currencies. At the same time you get a real profit from it.

It is impossible to make money on Forex without analyzing the current political and economic events all over the world. Forex should not be considered as a lottery, it is fundamentally the wrong approach. At some point, you may be lucky, but without knowledge of the basic laws and trends of the Forex market you will not be able to make money on Forex for a long time. The right decision would be to find a seasoned broker who has significant experience in this business or to study and analyze everything on your own and to learn from your mistakes.

Hopefully, now you know what is Forex. By the way, on our website there are different ways to top up JustForex account. Besides you can input the money via one payment system, and to output it via another one. In addition, you may expect no limits and professional support.