The Foreign Exchange Market, is where currency is traded against each other.
Imagine this: You are going to America on holiday, you visit the bank and buy £500 worth of dollars, for arguments sake lets say that equals to roughly $500 dollars. The travel agent purchases that $500 dollars in exchange for your £500 from a bank. You leave with $500 dollars.
Lets imagine you go to the Airport but all holidays are cancelled, you haven’t spent a single cent of your $500 dollars, so you take it back to the bank to get it swapped back. But because of the exchange rate your $500 dollars is now worth £510, making you a profit of £10.
Now this buying and selling in quantities over short periods can bring in a few pounds or if the market is in your favour a few hundred pounds per transaction. Instead of you going to America to spend that £500
Why does the exchange rate go up and down?
Currencies are always traded in pairs – the US dollar against the Japanese yen, or the English pound against the euro. Every transaction involves selling one currency and buying another, so if an investor believes the euro will gain against the dollar, he will sell dollars and buy euros.
In otherwords he thinks lots of people are going to be buying the Euro so therefore he buys lots before whilst the price goes up.
The price fluctuates due to supply and demand of each currency against the other, the buying pressure on the Euro will cause it to get stronger relative to the dollar.
Is it safe?
Yes, generally however it really depends on the company you use to buy and sell with. We have tested two websites on your behalf these are listed below, we have withdrawn several thousand pounds over the last few months from both of these.
What if the market dramatically drops?
It can be a relatively safe market for the individual investor. There are safeguards built in to protect both the broker and the investor and a number of software tools exist to minimize loss.
Both of the websites below allow for stop marks, these tell the software to buy and sell at certain points i.e. if you are down £20 on one day you may want to sell to reduce any further risks, however you may set it to sell when you reach £150 profit on one day.
