In a world beset by high unemployment rates and deflated interest rate structures, trading foreign currency exchange can be a dream come true. However, it’s an idea that can only be actualised by putting in some hard work and practice. For instance, you have to know about the monetary policies of all the world’s largest banks. You also need to know who the primary participants are and what kind of habits they have. In addition, you have to know about how forex’s various regional markets operate and learn how to take advantage of these nuances. Signing up for a “demo account” is a good idea. This will give you a real-time feel for the forex industry without risking any of your own money.
One reason why forex is becoming increasingly popular is the high leverage ratios that come with many trading accounts. Leverage in excess of 100:1 is common. To give you some idea of what this means, imagine that a 1% price movement equalling a 100% gain in capital.
Why Foreign Currency Exchange Is Winning Fans
As a capital market, forex is unique. It’s global – in the extreme. With the exception of Saturdays, it runs around the clock, with prices potentially changing every minute. As a result, you can launch a trade almost at any time, no matter where you are located. In addition, most trading accounts come with very high leveraging ratios attached. The norm appears to be 200:1, meaning that $1 of cash can anchor a $200 trading position. In such a situation, a move of only 50 pips would result in a 100% profit, before execution costs. Another winning aspect of the industry is that there are no prohibitions against selling. Depending upon your domicile, taxes on forex trading profits may be low.
The Popularity Of Foreign Currency Exchange
In countries that have very low interest rate structures (e. g., Japan) or severe unemployment problems (e. g., Spain), the popularity of trading forex at home has never been higher. For “Mrs. Watanabe” (the moniker given to the horde of Japanese housewives that have discovered the joys of “day trading”), the allure of being long the AUD/JPY, which involves a very wide interest rate discrepancy, is simply too strong to ignore. This is one of the reasons why over 5% of Japan’s population already owns a forex trading account. Forex account growth in Russia is also making new highs. According to the president of the Russian Off-Exchange Financial Instruments Association, Russia’s forex market is now growing at 10% per annum.
Leverage Is A Good And Bad Thing In Foreign Currency Exchange
Leverage is to forex trading what gasoline is to car racing; a little more is probably good, but too much will cause a crash. Why is not hard to figure out, since a forex trade is dependent upon keeping a certain amount of cash escrowed while you are trading. Unfortunately, this cash amount is fixed at the time of trade entry. Therefore, if your trade starts going south rapidly, it can erode your cash position to the point that it evaporates. For example, if you leverage a trade 200:1, this means that if the trade goes against you by more than 50 pips, you’re wiped out. Almost no currency pair ranges only 50 pips during an average 24 hour time span.