What is forex trading? How do people make money in the forex market?

What is forex trading? How do people make money in the forex market?

When you go on vacation, you buy foreign currency. When you return, you change back the foreign currency that you have left. The problem is that you lose money, because you pay a high rate when you buy foreign currency and get a low rate when you sell. This is the spread, and it’s how the bureau de change makes a profit.

What if the spread were very small?

• You buy $1,000 in London
• The bureau de change is selling at 1.60 USD/GBP and buying at 1.62 USD/GBP
• You pay £625 for $1000
• You would lose £7.72 if you sold the $1,000 back right away – but you don’t
• You wait two weeks and the dollar gets stronger
• The bureau de change is now selling at 1.57 USD/GBP and buying at 1.59 USD/GBP
• You sell your $1,000 and get £628.93
• You’ve made £3.93 on forex trading

You can’t get small fx trading spreads from a bureau de change, but you can get them from a forex broker. You can also do fx trading on margin, so you only need to come up with 1% of the money if you have leverage of 1:100. That means you would only have to invest £6.25 to make the £3.93 profit above. Of course, your forex trading profits aren’t guaranteed; the dollar could go down as well as up.