I work with a guy that trades currency through forex and he swears by it. I talked to another friend at work who is big in the stock market. He says forex seems good but is pretty risky because its like a margin account.
2006-06-05 13:51:56
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answer #2
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answered by Joe 1
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I am not an expert but I think that Forex is short for "foreign exchange".
It is a simple concept. Each country mints its own money. Some set their own currency rates, others tie them to those of other countries.
Only a finite amount of money has ever been minted in any country, and only a finite amount of money is allowed in circulation. Kind of like stock in a country in a way, but kind of different because it is not equity per se.
Anyway, in order to buy goods in a country, you have to have "legal tender". Generally, that means hard currency in that country. An exception would be barter. Bartering is not as common as it once was, however.
Because of rising (or falling) demand for goods and services within a country, coupled with its finite supply of currency - the value of that currency relative to that of another country can change. In fact, it constantly changes.
I am not sure how all this plays out in practical terms. However, I suspect that the value of a country's currency are tied to a variety of constantly-changing factors like: national deficit, foreign trade deficit, GNP (gross national product), financial obligations/debts, and possibly the goodwill of other countries toward it.
Obviously, the average person does not have realtime access to these values. Even if they did, they could not respond to them 24x7. And it is always 9-5 somewhere in the world, every hour of the way.
Further, the average person certainly does not have access to information about what those figures are going to be. That information is restricted to those who make policies or manage the things that affect it. That keeps things fair. Otherwise, it would be like insider trading in the stock market maybe.
Every decade or so, a wonderful cannot-fail "scheme" for getting rich arises. In the past three decades, this has included: S&L, junk bonds, and dot-com stocks. Each time, a rush of savvy and not so savvy investors rushed into the market. Each time, some savvy investors exited at the right time and made a bundle - and not so savvy investors, well, they supplied the bundle.
Lots of markets are nothing more than a game of musical chairs on a grand scale, at least at certain times. Merely increasing demand for something causes its value to go up - at least temporarily. By promoting something as a sure-to-win money making strategy, and trotting out a few lucky winners, the value of that thing naturally goes up. That creates more winners.
At the point where the people who know what is really going on feel like the risk of staying in is too great, they withdrawal their investment funds - they "cash out" as the saying goes. At that point, that creates a surplus for that item. According to the law of supply and demand in economics, that excess supply causes a drop in the price. The "bubble bursts". How many times have you heard that term in recent decades. More than once, probably - right?
Anyway, like junk bonds, stocks, and so forth - money is constantly being traded. Rates are arrived upon for how much to trade it for between each two currencies, and if you "buy low and sell high" - you make money. If not, you do not. Just like any other investment.
2006-06-05 12:58:17
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answer #3
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answered by John C 5
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