What is Forex?
Forex is short for foreign exchange. It's sometimes abbreviated FX but don't confused that with the gamer's terms for effects. Forex is no game; it's about very real, very large sums of money. But there are a lot of games involving forex being played on the Internet. Be careful; the rules are not always what they seem to be...
Understanding Forex Trading
Forex refers to the biggest, freest marketplace in the world: the global trading of different nation's currencies or money. Dollars, euros, pounds and yen are all examples of currencies. If you live in a country that counts money in dollars, then euros are foreign currency to you. If you want to pay dollars to someone who uses euros, the two you will have to engage in foreign exchange, or forex.
It's elementary supply and demand. If I have lots of dollars and few euros, your dollar is worth only a small number of euros to me; perhaps only a fraction of a euro. On the other hand, if I have a shortage of dollars (and need them to pay someone else), then I will give you more euros for your dollar. If we can negotiate a mutually agreeable exchange rate - X dollars for Y euros - then we can do business.
Our dollars and euros are said to be "liquid" if each currency can be exchanged for another readily. Liquidity is vital to international trade, obviously. Fortunately, the forex market is extremely liquid. There is always someone willing to buy your dollars with whatever foreign currency you need, and enough players in the market that you can almost always find an acceptable exchange rate.
The more information you have about exchange rates, the better the deal you can negotiate and the better your profit on foreign exchange. The rub for small traders is that they don't get much market information. The forex market is a clique-ish one. The more currency you trade, the more information other large traders will share with you. If you trade a small amount of currency, you do so in nearly total ignorance of what a "fair" exchange rate should be. Small players in forex make money accidentally; most of the time, they lose.
What if you have no money at all to trade? Logically, you will get no information that can help you make a profit; worse, you may well get misinformation deliberately fed to you in order to ensure that you lose money and someone else profits. This seems rather obvious but people, made foolish by greed, try to get something for nothing in the forex market all the time. And they get taken for a ride almost every time.
In my opinion, the individual layperson investor should NOT put any money into forex speculation! Even if you don't lose it in a scam, you need tens of millions of dollars in play to make any profits worth counting. The margins are that slim.
Forex4Free.org appears to be an example of this sort of scam. I say "appears" because I have no reliable information about how it truly works. But this is what has been told to me by Forex4Free's promoters:
There's a highly successful, international investor who can't be named. If he makes big forex trades in his own name, the evil banks and corporations will shut him out. So he wants to gather thousands of small traders, to act as his agents and trade his money. He actually wants to give me $200 for free to get started! Even better, I don't have to do the actual trading. Experts will do it for me and simply report how much profit I'm making.
All I have to do is open a virtual-money account with something called Liberty Reserve, sit back, and wait for things to happen. Well, after a week I haven't seen any $200 deposited in my Forex4Free account. I haven't been able to log in to my newly created Liberty Reserve account. I should be getting frantic because I'm missing out on all that free forex profit. For all I know, there is no investor. Any "$200" that appears in my Forex4Free account may simply be a number encoded in a Web page, not money in any bank. I don't know if Liberty Reserve actually exists; I'd never heard of it until this forex scam popped into my inbox. Things just don't seem right...
Here's what I suspect will happen next: I'll get an email from Forex4Free telling me that the $200 is waiting for me in Liberty Reserve, but I can't access it now due to technical problems. But hot opportunities are being missed! If I'll only put up $200 of my own (you know, as a loan, just until the problem with Liberty is resolved) then there's big money to be made. Maybe they'll ask for my social security number, or my Paypal or online banking passwords, so they can transfer money into my account. Get the picture?
Do you have something to say about online forex trading? Post your comment or question below...
This article was posted by Bob Rankin on 29 Apr 2010
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Article information: AskBobRankin -- What is Forex? (Posted: 29 Apr 2010)
Copyright © 2005 - Bob Rankin - All Rights Reserved