Let’s identify Forex
Before entering the financial market, this is an essential part that you should understand. You have to have a good knowledge about Forex and its uses if you are going to deal with financial market. It is not wise if you are dealing without such an understanding. (This is not relevant to automated transactions).
So I am going to give you some knowledge about Forex and its uses from this very first article that I publish in this web site. Read it carefully and there is nothing to worry as it is a very simple topic that we are going to learn now.
The word “Forex” which troubles us to understand stands for Foreign Currency Market. Many people know about Foreign Currency Market, but they do not know about Forex as it is an unfamiliar word for them. However, as I mentioned earlier Foreign Currency Market is a place where Foreign Currencies are exchanged. In this place, most commonly used currencies in the world such as EURO, USD, JPY, AUD, and GPB are exchanged. It is something like our stock market in Colombo. In stock market, the shares of leading companies in Sri Lanka are exchanged in between buyers and ultimately gather investments for companies. Similarly, in Forex Market Foreign Currencies are exchanged between buyers and sellers and ultimately it determines the value of a certain currency in the market. In world scale, the values of Forex market are determined by economical changes take place in the world. Specially the main bank systems of world’s powerful countries and economies of countries such as America, England, Australia, New Zealand, Japan and Europe directly affects the status of the Financial market. But it is only for relevant currencies. This is described further in the following section.
World Economy and Financial Market
I have given you an idea about the world economy above, and now we are going to see how this world economy affects financial market. Once we get the ability to understand this, we will be able to deal with financial market more conveniently. However we can take stock market in Sri Lanka as an example to clarify the matter. We know that socioeconomic changes such as wars, economical breakdowns can affect the stock market. During war period there were no big investments in Sri Lanka stock market. Because investors do not want to invest in a country where there is a chance to property destruction due to war. Similarly world financial market can also be affected with such influences. Some can be good and some can be bad. The economic collapse in Greece in recent past severely affected the Euro and decreased its value. Greece is a European country and Europe use a single currency as a region which is Euro. These types of reasons and many incidences can affect the world financial market. Therefore it is essential for you to understand and keep an eye on the factors govern the financial market. If news coming from the relevant country and a good attention is well opted, you will easily be able to earn more profits via Forex.
Other than the economic status of a country, violence, jobs losses, investments by main banks of the country will directly influence on the financial market. Attention on these factors is a good quality feature in a successful Forex trader. There are many web sites in the world that provide such details and we can obtain details by visiting them very easily. It will be further explained in another article. It is not required to understand all at once. You can learn each and everyone while proceeding with your experiences. (Here I have tried to show you that world socioeconomic factors can influence the Forex market. I wonder whether you understood. However we should remain in alert about that. If you will understand it correctly, you will feel that this is better than doing a job. But understanding is the most important thing. If you do not understand, stop worrying, because with time eventually you will get to know about this field. See whether I am telling you a lie. It’s ok. Now I have told you that any economic impact can affect the financial market. Sometimes you may be thinking why? The answer is many things in the world today are determined by the money. In fact everything needs money. So it can directly affect a certain currency. Euro breakdown do not affect the other currencies. It only affects the relevant region. Think that there will be war in Sri Lanka. It is not going to affect Europe. So the incidences in a particular region will affect only the involved currency. If still somebody can’t understand, you may ask from me.)
Colombo Stock exchange and world financial market
If we are dealing with the Stock market, we exchange (Buy and sell) the shares of registered companies in the market. It is about buying when shares are cheaper and selling when they are expensive. It is like we buy goods for a lesser price in a grocery store and sell them for a higher price.
You buy a loaf of soap for Rs 50 and sell it for Rs 55. Rs 55-50=Rs 5 will be your profit.
You join the stock market,
You have bought 1000 shares of company A which prices around Rs 100.
After few hours the value of a share will go up to RS 110. Then you sell these for the new price.
Shares bought from company A = 1000
Total cost of buying = Rs 100,000
Now the value is higher and you sell 1000 shares each worth Rs 110.
You get a total of 115×1000 = Rs 110,000
Your profit 110,000-100,000 = 10,000
It is the normal way that stock market work. There is almost no difference when it comes to the world financial market or Forex as we know it. But there are some important differences that we will discuss in the next few articles. (I hope that you gained some knowledge. Everyone should have some kind of an understanding to succeed in Forex trading. If you have problems, please comment and I’ll answer your questions. If you know the way, you’ll reach the destination. If you don’t know, probably you’ll stop halfway)
How to turn Forex (World financial market) in to our income method?
Before you enter to read section you may understand the above section and have a good knowledge on World financial market. To make your work easy I have emphasized those facts more in this topic.
Most of the people don’t know about Forex market or its potential to earn. But most of them have already involved with it without their knowledge. Have you ever visited a foreign country? Or did any relation or a friend in a foreign country send you money? Have you ever imported any good from a foreign country? If so, you have already involved with Forex. Now there may be a problem with you about that. So it’s time to read the following description to understand about that. It has taken one of the above examples to explain about this. (Some of the people do not know that they already do Forex. But if we tell them, they’ll tell this is a big lie. Even though they say it, they do Forex trading without even knowing that they do. The profits are taken by banks in their transactions. So they do not understand about it. We could have seen what happen if they could earn some money.)
Let’s think that you want to import a television from a foreign country. You may already know that web sites such as Ebay and Amazone.com sell equipments via internet. That web site as provided you details about television like this.
Price of a television is 300$. (USD) What should you do to buy this? Whatever the method (Credit card, debit card) you use to buy this, you got to pay from Sri Lankan rupees. (It means that you have to use rupees even though you buy goods from another country as we use Rupees as our currency. Banks do this job and you better do not think about it too much for now.)
Whatever the method you use you pay from Sri Lankan rupees and banks turn them to USD before paying to the company. It is described below.
Think that a dollar is being changed for rupees for a value of 120 today. (The value in rupees required to buy a dollar.)
$ 300× Rs 120 = Rs 36,000/-
That means you got to pay Rs 36,000 to buy this television. Then bank pays to the relevant company. Even though you didn’t directly pay, you have made an international money exchange. In this transaction it involved 2 currencies. They are USD and rupees (USD/LKR). This is what happens in world financial market as well.
We earn via Forex in a similar manner by directly exchanging different currencies. Exchanging Euro to USD or GPB to USD are some examples. That means exchanging one currency to another. It happens in a similar manner to what happens when we exchange Rupees to Dollars. But if we are joined to world Forex market via broker companies, we can do our exchanges by our own. In simple, it is called “Forex Trading”. In this way we can earn a huge income via the Forex Market. (In this we tell how we get profits from Forex. Think about the Television example. In your view you may not understand how to have a profit. But think you are the bank. Then you will understand. Bank takes your money in Rupees and pays it in USD. You have probably heard about the currency exchange rates. For an example, today’s buying price us 120 and selling price is 125. This is the way that banks earn their profits.)
Now it may be a problem for you to decide how this process affects Forex market and how to earn profits via that. As the example we described in the beginning of this article we obtain profits from Forex market by buying currencies in periods of low price and selling them when values are higher.
In our first example, the amount of profit you gain is as small as 10,000 after investing 100,000. Also stock market exchanges are not as quick as Forex market exchanges. Then you may think that it is impossible to earn enough in stock market. But the truth is if right measures are taken, it is possible to earn Rs 30,000 per month after investing Rs 11,000 (Approx. 100USD). And remember that if somebody learns this correct, he can completely use this as their sole income method.
Now you know what Forex market is. In next article we describe about the currencies exchanged in Forex and about their uses. Please contact me and solve any problem you have about this article. You can comment on your problem as well.