How the Forex Market Works ?

How the Forex Market Works 

What you should know about the market where you are speculating with movements in the exchange rate between different currencies.

DO WE ACTUALLY OBTAIN PERFORMANCES?

Let's start by saying that Forex is a very risky market. In fact, very large gains can be obtained in a short period of time, but also very high losses (this is the part we are not told).

These returns (or losses) are generated because they are invested in a highly leveraged way, and depend on the broker and the leverage that the account allows. This means that if we risk $ 1,000 in one operation, we are actually participating in an operation for $ 100,000 (or more, as we mentioned, depending on the leverage ratio allowed by the operating platform).

So, if we do well, it goes well: we win as if we had invested 100,000 dollars (and therefore the profit can be very high in relation to the money that one invested) - less the financial costs of the leverage and, The commission of the broker.

But if we go wrong, we can even lose 100% of our capital invested in that operation very easily. Or even more.

If our investment goes down and the $ 1,000 we invest is not enough to pay what is known as "margin", they will make a "margin call", which means that we have to put more money into our account to keep our operation in force . If we do not, the operation is suspended at that time automatically; And if we really went bad (we lost money), it may be the case that we have lost more than we invested and, we have a debit balance.

Some brokers tell their customers that this does not happen, since positions can be protected with a stop-loss order to limit our losses. However, we must be aware that an order of this type is not always a guarantee, as it may not be executed.

For example, if you put a stop loss at 12.90, but in one day the exchange rate moves from 12.91 to 12.89 without at any point becoming exactly 12.90, your stop loss will not run or will run to a Exchange rate and your loss may be higher than we anticipated.

To counter this argument, sometimes brokers say that in this market they move billions of dollars every second, which is not likely to happen, but it is a risk that we must be aware of.

On the other hand, it is important to know that it is a market not regulated by the Mexican authorities, who will not protect us in case of fraud or the like. Although there are some serious traders or brokers, it is also very common for Forex to open phantom accounts or do not exist. If you want to enter this market, you have to look at who you work with. It has to be a serious company and whose staff is properly trained and qualified. And unfortunately it is not easy to know for sure, even though they may have a fairly well-placed web page.