Why are currencies and forex so popular?

Why are currencies and forex so popular? It’s called a pip, and in most currency pairs, it’s worth the equivalent of $0.0001, and it’s the smallest increment in the forex market. One point in the yen is 0.01. Now you may find yourself wondering what the Forex market really is and why anyone would think that chasing pips would be a lucrative endeavor. However, with nearly $2 trillion in FX trading volume open daily (the market trades 24 hours a day from Sunday to Friday), these points can quickly add up to huge profits or huge losses. This makes it one of the most exciting, volatile and fascinating markets in the investment world.

So what exactly is Forex? Well, Forex is just a big market where companies, countries and investors can exchange currencies. For example, if a US company wanted to fund the payroll account of their office in Paris, they would need to convert dollars into euros. However, one dollar is not equal to one euro.

In order to exchange currencies, businesses need to buy euros with dollars on foreign exchange. Companies need to buy the USD/EUR currency pair to raise wages. Remember those points now? While a pip is a very small number, the absolute size of a lot means that a 1 pip movement is equal to $10 ($100,000 X .0001). Therefore, if the price moves by only a few pips, an investor can enter and exit a position very quickly and still make a profit (forex scalping). Forex traders have a good chance of doubling their investment in a very short period of time, but they can also easily lose it!

Until recently, retail forex investors didn’t exist. Forex traders used to be limited to large investment firms, central banks, etc., due to the size of the transactions. Now, however, Forex investors can often get as little as $1,000 (or 1/100th of the total traded value). However, since any leveraged position incurs interest charges, it means investors can lose their capital quickly if things go the wrong way.

Of course, no one has a crystal ball to predict the future, but Forex traders use a variety of strategies to help them determine when to exit and enter positions. While the profit potential is unlimited, a stop loss is usually placed on the order to prevent unacceptable losses. Regardless of the investment strategy you choose to use in forex trading, it is wise to place a stop loss on every order, as market volatility can quickly cripple accounts with high leverage.

Forex trading is so popular because trading is non-stop and the profit opportunities are limitless. However, forex can quickly make or break an investor due to the profit and volatility of the market itself.

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