If you haven't been living under a rock for the past ten years or so, you've probably heard the word forex. Before the Internet, almost no one had even heard the word, let alone knew what it meant. But now, it seems like everyone and their brother has a "foolproof" system for making a lot of money trading currencies on the forex. Most of these systems and the traders who use them don't last long, but every day, thousands of individual investors join the forex, which is the largest financial market in the world, and many of them do achieve their financial goals without ever leaving the comfort of their home offices. And to think that none of this was possible before the Internet was widely used just a few years ago.
The Internet and Forex Boom
Forex is short for "foreign exchange," which is the market where different currencies from different countries are traded. In the past, the big players in the forex market have been government central banks, hedge funds, major international banks, and very wealthy individuals. For example, George Soros made his fortune trading currencies. He once made over $1 billion in a single month! But since most people now have access to the Internet, the forex has become a popular trading platform for regular investors like you and me.
Why has the Internet played such a big role in the growth of forex? Well, one reason is that there are no commissions on forex trades. This means that before the Internet, investment advisors couldn't make money by getting their clients to trade currencies, and individual investors couldn't trade currencies on their own without the Internet. But now that the Internet is used all over the world, anyone can play the forex. It's no longer just for Alan Greenspan and George Soros.
Some warnings...
Even though there are no commissions on forex trades, it is important to know that there is a spread between the bid and ask prices of each currency pair. For example, the bid price for the currency pair USD/CAD, which is the U.S. dollar and the Canadian dollar, could be 1.0590 and the ask price could be 1.0595. What does that even mean? It means that you can get 1.0590 Canadian dollars for each U.S. dollar, or you can pay 1.0595 Canadian dollars for each U.S. dollar. In other words, you have to pay more for Canadian dollars than the bank is willing to buy them from you. If you've ever exchanged Canadian dollars outside of the forex, like on a trip to Canada, you're probably familiar with this spread.
Second, it's important to keep in mind that forex accounts give you a lot of leverage. Most of the time, for every $1 in your account, you can control $100 worth of currency. So, if you put $1,000 of your own money at risk, you could control $100,000 worth of currency. If the value of the currency went up by 1%, you would make 1% of $100,000, or $1,000. In other words, a 1% move would double your money. But if your currency went down by 1 percent, you would lose 1 percent of $100,000, which is the same as losing your whole investment. And you can imagine what would happen if your currency dropped by 2% or more.
So the best thing to do is to stay safe. Before putting real money at risk, you should learn more about forex and open a practise account. The forex is the world's biggest and most exciting financial market. To make money in it, you don't have to be a genius, but you should know at least the basics. Best of luck!
