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Forex Trading Advice – The Advantages and Disadvantages of Forex Trading

The leverage offered by forex trading is second to none. This enables you to buy and sell currencies with a fraction of their value. This leverage is known as margin and is expressed as a ratio. For example, a 50:1 leverage means you only have to put up 2% of the total value of your trade. Some brokers offer leverage of up to 1000:1.

You can trade in currencies using a mini or a standard Forex account. Mini accounts allow you to trade up to $10,000 worth of currency per transaction. Standard accounts are used for transactions worth more than $100,000. Margin money is used to leverage transactions, which means your broker can provide the rest of the capital you need in a pre-determined ratio.

The process is simple. Traders place bets on the strength or weakness of one currency compared to another. For example, if the British Pound is weaker than the US Dollar, you would sell it. If the forecast is correct, you would make a profit or lose money. The bid price is generally lower than the ask price, although it can be higher if demand is high.

One of the greatest advantages of Forex trading is that it requires relatively small initial investment. A small amount can yield big profits. Newbies can even begin trading with just $500 and leverage 1:500. This allows more people to participate in Forex investments. However, a disadvantage is the frequent fluctuation in exchange rates. Brokers take advantage of this by buying and selling at pre-determined points to make profits. It is possible to catch these brokers if you watch the patterns of their activities.

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