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Investing in the Forex market is a profitable proposition for any investor. If you want to earn some extra money, investing in the Forex market can be a wise decision for you. With daily turnover of over USD 3 trillion, the Global Forex market has huge potential. There are so many other advantages of investing in the Forex market as well. When you are investing in the Forex market, you enjoy the maximum leverage than any other financial market. The round the clock trading hours, lowest transaction cost, highest liquidity of the Forex – al these factors make Forex trading really lucrative for any investor. Moreover, if you compare the Forex market with any other financial market in the world, you will find out it is the most stable in terms of regular movement. Forex trading therefore has become a preferred way of investment for many traders around the world. Let us give you an overview of how exactly you can make some extra income with the Forex trading.
The basic idea of Forex trading – Forex trading is all about trading in currencies. In Forex trading you will be buying and selling one currency in respect to the other. The key for success at the Forex market is to buy one currency at a lower cost and selling that currency at a higher price. Of course you can also short sell at the Forex market where you sell at a higher rate and then buy the currency at a lower price to close the position and earn money from the trade. While trading in Forex market you will be offered with a Forex quote for the currency pair that you are trading. The currency pair is the combination of the two currencies – the base currency and the price currency. Generally it is the base currency on which the profit and loss of the trade is determined and it is the price currency or the trade currency in which investment is done and the profit is obtained. While presenting the Forex quote the price of the trade currency for one unit of the base currency is given.
How profit and loss is determined in Forex trading – Once you get the quote and accept it and do the trade you have to pay the value of the base currency in the trade currency. For example, you are trading in the currency pair of Euro and USD and you have a deposit of USD 2000 in your account. With this deposit you can invest in the Euro of USD 200000 as the Forex brokers offer you a leverage of 100:1. So if the quote for the EURUSD is 1.2750, you can buy 150000 Euro and your investment will be about 150,000 x 1.2750 = 191,250. Now if the price of EURO rises in respect of USD, for instance if it goes to 1.2850, the value of 150000 EURO will be, 150,000 x 1.2850 = 192,750 USD. By selling the EURO at this position you will be earning a profit of 192,750 – 191, 250 = 1500 USD. So with a little investment of USD 2000 you will be able to get a profit of USD 1500. This is possible only because of the higher leverage that is offered by the Forex brokers.
Of course this is a simple example that we have presented to show you how the profit and loss is determined in Forex trading. There are so many other factors that are associated with Forex trading and while investing in the Forex market you need to have a comprehensive idea of these factors. Besides you should be also aware of the factors that control the Forex market. It is global and domestic economic scenario, political stability, export and import ratio and so many other factors that control the global Forex market. As a trader you have to keep a close eye on these underlying factors as well as on the movements of the currency pairs at the Forex market. This will let you predict the movement of the Forex market rightly and take timely and effective trading decisions. So start learning about the Forex trading principles and start investing in the Forex market to earn some extra money.
