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FOREX Mathematics ~ Same Trade. Different Returns.
by Erik Teh
www.forexrookie.com
One of the biggest benefits in the FOREX market is
leverage. In the stock market you will have to find
between $15,000 - $25,000 to start investing seriously. In
the FOREX market you only need $1,000 to buy $100,000
worth of US Dollars (or $10,000 to buy $1 Million
Dollars) - this is called leverage. It is a powerful
concept that allows small investors to outlay a small
fraction of the dollars they own.
ROI (Return on Investment) is an important financial
metric to measure investment success. Most people would be
happy to invest $5,000 in the stock market and get a 15%
return after a year. In the FOREX market your ROI% is
typically 100% ~ 200% per day (read carefully per DAY, not
per year). The profit returns are tremendous. It is very
common and easy to risk $300 and get paid $300 - $600 in a
trade that is open for only 2 hours. Imagine trading full
time and having these daily returns ~ do the calculations
and you will be shocked!
The first commandment of Forex Trading is to develop a
simple and consistent trading methodology. A trader needs
to consistently earn PIPs (this is an acronym for
movements in currency value) to be successful. By applying
another form of leverage he can exponentially increase the
profit returns. This leverage is called buying Multiple
Lots. Traders begin by buying 1 Lot ($100,000) of
currencies. If they were to buy 2 Lots ($200,000) the risk
and reward will double. Most inexperienced traders begin
to fear the markets at this point because they haven't
learned to tame their emotions. In reality each trade is
exactly the same as if you were trading 1 Lot ~ they fail
to realize that FOREX trading is about winning PIPs and
not winning money (money will be the result of your PIP
wins).
The Experienced Trader can easily grab 50 PIPs on each
trade. This is worth $500 for buying 1 Lot. By buying 10
Lots (outlay $10,000 for own $1 Million Dollars) his 50
PIPs are now worth 500 PIPs ($5,000). I know of traders
that buy 50 Lots ~ his 50 PIPs are worth 2,500 PIPs
($25,000). Do you see the mathematics? Same Trade.
Different Returns.
The FOREX market is extremely lucrative. Every day about
$1.9 Trillion Dollars are exchanged across the FOREX
Market. The US Stock Market will typically trade around
$100 Million Dollars per day. This makes the FOREX 20
times bigger than the Stock Market (and it continues to
grow exponentially year on year). The potential to realize
profits and wealth in FOREX markets is huge ~ that is why
Warren Buffet and Bill Gates engage it.
I believe when you start trading the FOREX you will never
trade traditional stocks, commodities or bonds again.
Start small and build up.
Erik Teh
Learn more on the Forex by getting a free eReport at
http://www.forexrookie.com
Excellent site for Forex resources.
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