FOREX: its definition, reality and types

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The foreign exchange market dates back to 1973 AD when the system of pegging the dollar against gold failed, causing many countries to adopt the floating exchange rate system, which meant the exchange rate would change based on supply and demand could, while maintaining the ability for central banks to intervene to control the currency if their movements are dangerous to the state economy, and as a result of the fluctuating exchange rates, the currency has become a commodity, the value of which depends on supply and demand, and its exchange rate depends on the economic level of the state and the growth it contains. Foreign exchange trading was limited to monopoly banks.

Forex definition:

Foreign exchange in the language:

Forex is an English word that comes from the first few letters of the foreign exchange market, which means the foreign exchange market

Foreign exchange related to:

The researcher did not find a comprehensive and prohibitive definition of foreign exchange in contemporary business terminology, but most definitions are definitions that result from the literal translation of the previous sentence which shortens the definition in the foreign exchange market.

Looking at the forex websites and some of the e-books published by those websites, forex can be defined as follows:

Currency speculation takes place in the foreign exchange market, also known as the foreign exchange market or the foreign exchange market, as it has no center and no specific place to trade, but hundreds of websites that are connected to one another via internet or telephone networks around the world what Means that forex is traded on the over-the-counter (OTC) exchanges, the forex market is also the largest and fastest growing in the world with an estimated daily volume of three trillion dollars, being within (24) hours a day, five days a week is speculated and trading starts on Sunday at 10 p.m.

Forex relationship with margin trading:

Trading currencies requires large sums of money to make a profit by taking advantage of price differences when buying or selling currencies, and these amounts may not be available to the investor to trade five million dollars, for example, and these sums he does not have: Through the margin system he can only deposit a hundred thousand dollars, provided the remainder is considered a debt to the investor.

Hence, it can be said that margin trading is one of the forex systems and it is indispensable for forex companies.

The margin in Forex is divided into Used Margin:

It is also known as the reserve margin, i.e. H. the amount withdrawn from the investor’s account presented to the brokerage firm as a refundable deposit to be reserved until the deal is closed. When the deal ends, the company returns that amount to the investor’s account regardless of whether the deal was won or lost.

Usable margin:

This is the amount that will remain in the investor’s account after the used margin has been subtracted from it, and it is the maximum amount that can be lost in the transaction.

From the above it can be seen that the loss is only deducted from the available margin and the margin used remains the same, but comes out of the transaction account as if it didn’t exist, but flows back into the investor account after the sale of the goods is completed.

Example:

For example, if the investor places a balance with the brokerage firm of ($ 1000), the first deal with only ($ 100) dollars is entered as margin and ($ 100,000) is added to it. Dollars from the brokerage firm as a loan, and ($ 900) dollars remain in his account as available margin.

Hence an equation was developed to express this:

Margin Available = Balance – Margin Used

Forex trading method:

Forex trading depends on the investor’s connection to the internet or phone, the trading method can be summarized as follows:

1- The investor chooses a brokerage company that corresponds to his goals and the possibilities of entering into a contract.

2- Then the investor opens an account with this company, then collects his personal information and deposits a sum of money for his investment.

Some companies only allow deposit of (USD 100) and some do not allow deposit of a smaller amount (USD 2000).

3- The company is responsible for lending the investor the remainder of the amount they need to close the deal.

When the company arrives  agrees that it offers a leverage of (1: 100) and the investor wishes to deposit an amount of (USD 1,000), this means: The company will lend him an amount of (USD 100,000)

4- The investor follows the price movement through one of the specialized programs on his computer

The one who is connected to the Internet and then gives buy or sell orders to the brokerage company through the trading program, since the communication between the investor and the brokerage company is done through a special program and access to this program is through a username and password for everyone Investors.

This is what distinguishes forex trading, because the large and rapid currency changes require the investor to constantly follow the price movements and not buy at all for fear of losses.

If the investor bought the euro against the dollar at (9850.0) and sold it at (9890.0), how does that determine profit and loss?

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