EXAMPLE:

You believe that signals in the market are indicating that the British Pound will go up against the US Dollar.

You open 1 lot for buying the Pound with a 1% margin at the price of 1.49889 and wait for the exchange rate to climb.

At some point in the future, your predictions come true and you decide to sell. You close the position at 1.5050 and earn 61 pips or about $405.

Thus, on an initial capital investment of $1,000, you have made over 40% in profits.

(Just as an example of how exchange rates change in the course of a day, an average daily change of the Euro (in Dollars) is about 70 to 100 pips.)

When you decide to close a position, the deposit sum that you originally made is returned to you and a calculation of your profits or losses is done. This profit or loss is then credited to your account.

Investment Strategies:

The two fundamental strategies in investing in FOREX are Technical Analysis and Fundamental Analysis.

Most small and medium sized investors in financial markets use Technical Analysis.

This technique stems from the assumption that all information about the market and a particular currency's future fluctuations is found in the price chain.

That is to say, that all factors which have an effect on the price have already been considered by the market and are thus reflected in the price.

Essentially then, what this type of investor does is base his/her investments upon three fundamental suppositions.

These are:

A. That the movement of the market considers all factors.

B. That the movement of prices is purposeful and directly tied to these events, and

C. That history repeats itself.

Someone utilizing technical analysis looks at the highest and lowest prices of a currency, the prices of opening and closing, and the volume of transactions.

This investor does not try to outsmart the market, or even predict major long term trends, but simply looks at what has happened to that currency in the recent past, and predicts that the small fluctuations will generally continue just as they have before.

A Fundamental Analysis is one which analyzes the current situations in the country of the currency, including such things as its economy, its political situation, and other related rumors.

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