Forex Explained

The Forex market

The currency exchange trading market is the biggest and fastest growing market on earth it’s even bigger then NASDAQ! Its gross revenue is more than 3.5 trillion dollars daily. The participants in this market are central and commercial banks, corporations, institutional investors, hedge funds, and private individuals like you and I.

Forex trades are non-delivery trades: currencies are not physically traded, but rather there are currency contracts which are agreed upon and performed.

Both parties to such contracts (the trader and the trading platform) undertake to fulfill their obligations: one side undertakes to sell the amount specified, and the other side undertakes to buy it.

What make up a Forex deal ?

A Forex deal is a contract agreed upon between the trader and the market-maker.

The contract is comprised of the following components:

• The currency pairs (The currency to buy and the currency to be sold)
• The principal amount
• The exchange rate agreed

How do I profit in Forex ?

Clearly, buy low - sell high! Imagine that the exchange rate of EUR/USD (euros to US dollars) at 1 pm is 1.1999. If you had bought 1,000 euros at that time , you would have paid 1,199.00 US dollars. If one hour later, the exchange rate was 1.2222, the value of the euro has increased in relation to the US dollar. You could now sell the 1,000 euros in order to receive 1222.00 US dollars. You would then have USD 23.00 more than when you started the trade an hour ago.

What is “Leverage” and why do we need it?

The ratio of investment to actual value is called “leverage”. Using a $100 to buy a Forex contract with a $10,000 value is “leveraging” at 1:100 ratio.  Your trade of $100 is all you can risk, but you can make way more!

How risky is Forex trading?

As mentioned above you can never lose more than the the amount you invest, but as with everything that involves risking money, we advise you to never risk more than you can afford to lose.

With eToro you can open a real money account from as little as $50, minimum trade is $25 and we offer a variety of leverages up to 400:1.