![]() The reason for doing that is so that it magnifies the returns from favourable movements in a currency's exchange rate. By borrowing money from a bank/brokerage, investors can trade at a larger position in a currency. The use of leverage is a very common strategy in forex trading. Specific to forex trading, leverage refers to the use of borrowed funds to invest into a specific currency. If a trader does not have a huge capital to trade on the forex market, the appropriate use of leverage may expand the trader's capacity trade. This is the exact reason why forex transactions should be performed in sizable amounts, whereby these small price movements can be translated into larger profits. For instance, when a currency pair moves 100 pips from 1.8000 to 1.8100, it is in fact only a 1-cent movement of the exchange rate. These movements are usually in fractions of a cent. When it comes to forex trading, the currency movement is measured in pips, which is defined as the smallest change in currency price and depends on the currency pair. As a matter of fact, forex market is one of the most actively traded markets in the world, with an average daily trading volume of S$5 trillion. This volatility makes forex market attractive to potential investors. ![]() The volume of currencies exchanged daily can be huge enough to bring volatility to exchange rates. ![]() While a lot of forex transactions are performed for practical purposes like the abovementioned example, the vast majority of currency conversions are done with the aim of earning a profit. If you have ever traveled overseas, it is then likely that you have made a forex transaction when you exchange your local currency to that of your destination country. ![]() To put it simply, Forex Trading can be understood as a network of buyers and sellers, who transfer a specified currency, e.g., USD between each other at an agreed price. ![]() Forex, also known as foreign exchange, is the conversion of one currency into another. ![]()
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