Another type of investing strategy. Forex trading or foreign exchange. If you don’t know this is currency trading. When one currency is traded against another for a certain time period, it is then traded back (at ideally a profit.)
Forex trading is a relatively new investing medium. Although it has been around for a long period of time, the original amount of capital you would need to make a profit from trading currencies was very high. This meant that this investing technique wasn’t available unless you had £500,000+ to trade with, which 99% of people didn’t and hence it was a very unique and also frowned upon trading medium.
But with the introduction of the internet and faster trading methods there was something that changed, this was the LEVERAGE that certain companies offered. You can see leverage explained here. Leverage essentially is brokers giving you 2/4/10x the amount you deposit into an account. The reason why brokers do this is they make money based on the spread of a currency pair. Similar to how you don’t actually get the trading price when you go on holiday, and when you come to “sell” your money back if you have any left over, you’ll know that you get a highly reduced rate. This is how brokerages make their money. And hence the more you “bet” against the spread the more money you will actually earn the broker and hence the more money they will give you to trade.
The Reason Why Leverage Works So Well
Because its potentially a win win – When the broker offers you 2/1 leverage for example, this means if you deposited £10,000 you could now trade with essentially £20,000. This means that if you make a profit on a percentage of your bankroll, that profit would be greater than if you simply traded with £10,000. (That’s a win for you.) and the broker will make more money because when you trade on a spread, regardless of whether it goes up or down the broker makes money from the spread difference (that’s their win) and hence the process benefits both parties.
But remember using leverage can work against you too, so until you are a experienced trader I would recommend staying to very low leverage, or even avoiding it altogether.
We have recently partnered with a number of companies, in the search to try and generate long term profits from forex. But it is the very early days for us so we have no solid profit yet and hence cannot recommend a process either way. We will be reporting on our progress in the coming months, strategies and systems we thought were useful, others which didn’t seem quite right, as well as everything inbetween. Remember that as with investing there are people looking to scam you. Be very careful when you are a beginner. We’ve found this beginner forex website amongst others, I think its a good place to start your fx journey. Best of luck and let us know how you do.