How the Internet Sparked

the Boom in Forex

Trading

By Anthony Mullen

Unless you've been living under a

rock the past decade or so,

you've undoubtedly heard a new

word enter the English lexicon --

forex. Before the advent of the

Internet, almost no one had ever

heard the word, let alone knew

what it meant. But now, it seems

like everyone and their brother

has a "foolproof" system for

reaping tremendous profits

trading currencies on the forex.

While most of these systems

quickly bite the dust -- along with

the traders employing them --

thousands of individual investors

join the largest financial market

in the world, the forex, every day,

and many of them do realize their

financial dreams without ever

leaving the comfort of their home

offices. And to think, none of this

was possible just a few years

ago, before the widespread

adoption of the Internet.

The Forex-Internet Boom

For those that don't know, "forex"

is short for "foreign exchange,"

and it is the market in which

international currencies are

traded. Historically, government

central banks, hedge funds,

major international banks, and

extremely wealthy individuals

have been the big players in the

forex: George Soros, for

example, made his fortune

trading currencies -- he made

over $1 billion in a single month

once! But ever since the Internet

reached the masses, the forex

has become a favorite trading

platform of everyday individual

investors like you and me.

Why has the Internet been so

important to the expansion of

forex participation? Well, for one

reason, forex trades have zero

commissions. This means in the

days before the Net, investment

advisors couldn't make money

convincing their clients to trade

currencies, and without the

Information Superhighway,

individual investors had no way of

placing forex trades themselves.

But now, with worldwide cyber-

connectivity, anyone and

everyone can play the forex -- it

isn't just for the Alan Greenspans

and George Soroses of the world,

now.

A Few Caveats...

It is important to note that while

there are no commissions

charged on forex trades, there is

a spread between the bid and

ask prices of each currency pair.

For example, the currency pair of

the U.S. dollar and the Canadian

dollar, expressed as USD/CAD,

may have a bid price of 1.0590,

and an ask price of 1.0595. What

the heck does that mean? It

means that that you can obtain

1.0590 Canadian dollars for every

one U.S. dollar; or you can pay

1.0595 Canadian dollars for every

one U.S. dollar. In other words,

you have to pay more for

Canadian dollars than the bank is

willing to buy them from you -- if

you've ever exchanged Canadian

dollars outside of the forex, (i.e.

on a trip to Canada), you're

undoubtedly familiar with this

spread.

Secondly, it's important to note

that forex accounts allow you to

have a tremendous amount of

leverage. Typically, you can

control $100 of currency for every

$1 in your account. So, for

example, if you were to risk

$1,000 of your actual money, you

could control $100,000 worth of

currency. If the currency

appreciated (went up) by 1%,

you would make 1% of $100,000

-- $1,000 -- i.e., you'd double

your money on a 1% move! But if

the opposite occurred, if your

currency depreciated (went

down) by 1%, you would lose 1%

of $100,000 -- i.e., your entire

investment. And you can imagine

what would happen if your

currency went down by 2% or

more!

So the best advice is to play it

safe. Read up on the forex and

open a practice account before

risking real money. The forex is

the largest and most exciting

financial market in the world, and

you don't have to be a genius to

make money in it, but you should

at least have the basics down.

Good luck!

Anthony Mullen has worked

within investment banking and

financial services for 21 years

is a regular contributor to

http://www.forexmarketfocus.com

Article Source:

EzineArticles.com

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