How do you make or lose money in a forex trade

How do you make or lose money in a forex trade

The forex markets trade in pips. A pip is 1/100th of 1% or $10. Like all financial products, forex quotes include a “bid/ask” spread. The “bid” is the price at which the market maker is willing to buy (and you can sell) the base currency in exchange for the counter currency. The “ask” is the price at which the market maker is willing to sell (and you can buy) the base currency in exchange for the counter currency. The difference between the “bid/ask” spread is how the market maker and the broker are compensated for their services. For instance, if you bought 1 EUR/USD at 1.3000 and the “bid/ask” pip spread is 3 pips. That means that you will not be at break even until the spread goes to 1.3003. At 1.3004 you will have a profit of $10. If you sell for anything less than 1.3003 you will lose $10 per pip.

How risky is forex trading

Trading forex on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade forex you should carefully consider your investment objectives, level of experience, and risk tolerance. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with forex trading, and seek advice from an independent financial advisor if you have any doubts.

Who are the players in the forex market

The largest players in the forex markets are the largest investment banks such as Deutsche Bank, UBS, Citigroup, Barclays Capital and Goldman Sachs.

The large investment banks account for over 50% of all the forex related transactions.

The next large user of the forex markets are large multinational companies such as Nike, Walmart and General Electric. These companies may use the forex markets to hedge their currency risks with other countries.

Another large user of the forex markets are national central banks. They often use the forex markets to try and control inflation, money supply and interest rates.

Investment management firms and hedge funds also use the forex markets. They may be buying or selling for a pension fund or a mutual fund to help facilitate a foreign bond or stock trade. They may even be speculating for profit for or against a certain currency.

Lastly, retail forex brokers and individual speculators use the forex markets for profit and hedging currency risks. This is the smallest group of forex investors making up only 1-3% of the total forex transactions globally.