FOREX Mathematics - Same Trade. Different Returns.

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.