Forex, or the foreign exchange market, seems to be a word that is increasingly on the lips of young Quebecers. This practice of buying monetary currencies is often presented as a real gold mine, but at what price?
The Forex market, for Foreign Exchange Market, is for monetary currencies what the stock market is for stocks. Rather than buying or selling securities on the stock exchange, Merchants buy and sell currencies from around the world at constantly fluctuating exchange rates. It is by playing with the differences in the value of one currency against another (for example the Canadian dollar against the US dollar) that we can benefit from our exchanges.
One of the strategies of Forex traders is to rely on events that have the potential to affect exchange rates. When Donald Trump was elected in 2016, many believed that the Mexican peso would lose a lot of value against the US dollar. They hurried to buy pesos and then convert them into US dollars. Take the example of a trader which buys the equivalent of $ 100,000 in pesos, which represents 200,000 pesos. Suppose the value of the Mexican peso drops by 5% and decides to convert its pesos back to US dollars, the 200,000 pesos are now worth 105,000 US dollars. This trade then earns him a 5% profit.
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Once frequented by large banking institutions, the Forex market now welcomes large and small investors. “The internet has ensured that there are now brokers who make this market accessible to everyone. It is an extremely liquid market and people are starting to see it as a huge casino that you can go to and make money very quickly, ”says HEC finance professor Alain Elkaim, who has been interested in Forex for 23 years.
Nowadays, to be able trader in Forex, you just have to create an account with an online broker specialized in the sector. Furthermore, this ease of access means that large numbers of individuals start without possessing the necessary economic knowledge to fully grasp the fundamentals of the market.
To sell dreams
Due to the current craze, many people will take advantage of Forex to sell dreams. Some “mentors” will openly promote miracle recipes, suggesting that the exchange rate market is a simple profession.
“Mentors post pictures of Lamborghini and expensive bottles of liquor on Instagram to attract people, and it works,” says Alexandre Demers, owner of Traders 360, an investment management firm.
With constant variations, it is true that it is possible to earn thousands of dollars in a few hours with Forex. However, this doesn’t happen by snapping your fingers. “You have to be ready to spend a lot of time and be very strong psychologically. You are fighting the big banking institutions, so you have to understand how they are manipulating the market, ”says Andrew Mcgravy, a 20-year-old student who has worked in Forex since last year.
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For Mathis Fredette, a 19-year-old from Varennes, it took several months of practice and a professional training of over US $ 3,500 before he was completely comfortable with the currency market. If today he lives mainly on Forex, for the first time he practiced using fictitious money. The online brokerage platforms offer the possibility to practice using “demos”, or fictitious accounts on which you can simulate Forex trading.
And boom pandemic
“The pandemic has caused one of the biggest booms in the field of trade expert “, said Martin Godin, one of the administrators of the Trading Quebec page on Facebook. In the last year the number of members of our page has doubled.”
Even though he thinks we won’t see such impressive buzz again anytime soon, Martin Godin still believes the trade, including Forex, it will continue to grow in popularity for years to come. “30 years ago, if you wanted to trade, it wasn’t in your living room, but with today’s new technologies it’s possible, ”he says.
Not exactly a new player
Although new to many, the foreign exchange market in the form of Forex has existed since 1971. Billions of dollars are traded there every day, making it the most liquid financial market in the world.
The arrival of modern technologies has democratized the practice by allowing users to trade currencies on the Forex market using a simple mobile phone. And even though a multitude of brokers today offer this service, you need to make sure they are registered with the Investment Industry Regulatory Organization of Canada (IIROC). Otherwise, if a problem arises with our money, there is no legal recourse.
Important thing to know: Only the most important currencies are traded in the Forex market, such as the US dollar (USD), the euro (EUR), the Japanese yen (JPY) and the British pound (GBP).