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Forex investing is one of the most high-risk but also high-reward markets for investment. It is no exaggeration to say that getting into forex investing without extensive background knowledge and investment experience can lead to losing enormous amounts of money quickly. At the same time, forex is one of the biggest markets in the world, and it is open 24/7/365 because it involves currency exchange around the world.
Profiting from Forex as a Small Investor
Most of the transactions in the forex market are institutions like banks and large corporations, which are buying and selling various currencies to protect themselves against risk or carry out some accounting– they are not looking to make money. The small individual investors make up a small fraction of the total value of forex. As a small investor, your goal is to make a profit by correctly betting on the direction that the value of a currency pair will move. This can be quite difficult, but with experience, you can learn how a currency pair can move over time and what kind of news will cause it to move.
Understanding How Margin Affects Investments
Much of the risk from forex investment comes from the fact that there is easy availability of margin. Margin means you can borrow money to multiply the size of your bet. You might have access to x5, x10, or even x100 margin depending on where you invest. This boosts your potential profits but also your potential losses. If you bet $1,000 on an x100 margin, you will owe the brokerage $100,000 if the bet does not succeed. This is the primary reason that people do not do well in forex– they get overconfident and lose their money in a bet backed by a margin.
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