Synopsis E-book: Essential Guide to Trading Foreign Exchange
Foreign exchange is the world’s largest and most active market. It’s where banks and dealers exchange large amounts of foreign currency, mostly to facilitate trade and investment between countries. It’s open all day and night – except at weekends – and its volume amounts to about $4 trillion a day. High liquidity means there is always someone to trade with, and there is little risk of a single player being able to move the price, as can happen in other markets.
The foreign exchange market also offers the ability to to profit from a large position in the market for a small upfront cost, known as the initial margin. This is called leverage, which in the foreign exchange market is a ratio of at least 100:1.
In order to buy $10,000 worth of of USUS dollars, for example, you only have to pay $100 to enter the trade, because you effectively borrow the remainder, or $9,900. But leverage goes hand in hand with risk, which means it’s essential to have a strict risk management plan, and to follow it without fail. Leverage can be dangerous for investors, but for traders it’s a useful tool when used with caution and understanding.