How does FOREX trading work?

currency chart

The international foreign exchange market is the largest and most liquid financial market in the world. Since the forex market is organised in a decentralised manner, investors can trade around the clock. For a long time, only banks, hedge funds and other institutional investors had access to the Forex market. That has changed. Today, private investors also have access.

Foreign exchange can be leveraged. Here is hoe exness-ar explaines it: "إن هذا الرافعة المالية يجعل تداول الفوركس بعد تنزيل exness منصة التداول استثمارًا مضاربًا للغاية - ولكن من ناحية أخرى ، يمكن تحقيق أرباح سريعة حتى مع استثمار رأسمالي صغير. نقدم لك هنا نظرة عامة على تداول الفوركس ونوضح لك كيفية عمل تداول الفوركس. اكتشف المزيد واكتشف عالم المضاربة في الفوركس."
"This leverage makes forex trading after you download mt5 Exness a highly speculative investment - but on the other hand, quick profits are possible even with a small capital investment. Here we give you an overview of Forex trading and show you how Forex trading works. Find out more and discover the world of forex speculation."

Currency speculation: A business with relations

In a currency transaction, market participants acquire one currency "against the other". In simplified terms, a loan is taken out in one currency, which is then exchanged for the other currency. A case study:

On the Forex market, 1 euro is traded at 1.30 US dollars. This means that for 1 euro, 1.3 US dollars are paid. Conversely, one dollar pays just under 77 cents. An investor who assumes that the euro will fall against the US dollar borrows 1 million euros and exchanges them for 1.3 million dollars. The investor is correct in his assessment and one day later only 1.28 US dollars are paid for one euro. He therefore exchanges 1.28 million US dollars for 1 million euros and repays the loan taken out in euros in full.

The profit of this transaction consists of the remaining dollar balance and amounts to 20,000 US dollars or 15,625 euros. From this profit, interest amounting to approx. 100 euros must be deducted, which accrues overnight for the loan in euros.

forex app

Forex: Profits in every market situation

The special attraction of currency trading in its present form is that it is possible to carry out transactions in the above orders of magnitude even with small and medium-sized accounts. In forex trading, the credit in one currency is continuously offset against the balance in the other currency.

This means that only a fraction of a market position entered into actually has to be raised. This "margin" serves as a security deposit and amounts to between 0.25 and 2 percent of the market value, depending on the broker and currency pair.

Move 4 million euros in the market with 10,000 euros
High leverage offers huge profit potential

This means that with an account balance of 10,000 euros, positions with an equivalent value of up to 4 million euros can be moved. In a typical forex trade, 1 percent of the market value of a position is deposited as margin.

The low capital investment not only makes trading on the Forex market affordable for many investors, but also brings with it a very large leverage effect: if only a fraction of a position is actually covered by equity, even small market movements are enough for very large profits (or losses). With a 100-fold leverage effect, for example, a market movement of 1 per cent is enough to double the capital invested (100 per cent profit) or to completely consume it (total loss).

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