Can anyone explain the FOREX Market to a "layman"

funkintastic

Hi,

Can anyone offer me some help? I have been offered a "too good to be true" investment opportunity that I need some help understanding. A good friend has been investing in the Forex market (through a broker) for the past year or so. He says that he has been told that he wont loose his initial investment.They have been running for about 4 months at a time and he says that he has been getting returns of upto 50% each time. I have £10k sat in a pretty average savings account, that I dont need access to at short notice so am thinking of giving it a go. As I said, this really does seem too good to be true, so can anyone explain the risks involved?

Thanks.

aleph_0

funkintastic wrote: »

this really does seem too good to be true,

... so it probably is. More precisely if there was a risk-free investment that was giving better than standard Savings account returns, wouldn't everyone be using it?

tradetime

Ask here, somebody will put you right

prudryden

funkintastic wrote: »

Hi,

Can anyone offer me some help? I have been offered a "too good to be true" investment opportunity that I need some help understanding. A good friend has been investing in the Forex market (through a broker) for the past year or so. He says that he has been told that he wont loose his initial investment.They have been running for about 4 months at a time and he says that he has been getting returns of upto 50% each time. I have £10k sat in a pretty average savings account, that I dont need access to at short notice so am thinking of giving it a go. As I said, this really does seem too good to be true, so can anyone explain the risks involved?

Thanks.

I expect its the futures market rather than the FOREX market. The only way I know to get your principle back is to invest £5,000 into a zero coupon bond that matures at £10,000 after so many years. (Money doubles every 10 years at approximately 7%). The remaining £5,000 is then invested in various future contracts. Once the £5,000 is gone, you have to wait at least 10 years to get your principle back from the zero coupon bond. In addition, the brokerage firm would have to guarantee your stop loss so you don't lose more than the £5,000. It is very possible that you can lose substantially more than your initial £10,000 if the market opens substantially below your stop loss.

isofa

Although I don't normally recommend Wikipedia for research due to some inaccuracies, this is a good article to read and digest http://en.wikipedia.org/wiki/Forex

By the way, if it's too good to be true: it is.

funkintastic

thanks for the links I've had a brief glance and will give them a proper read later.

I know what you mean about the "to go to be true" thing, maybe my friend playing down the risk involved, or his broker/ investment manager is extremely confident in his own abilities when it comes to saying he wont loose his initial investment. But I cant argue with the repeated gains he (and others in his consortium) have made over the last year or so.

So am I to understand that the Forex market is used like the stock market where a trader can make or loose maney depending on his skill and market conditions, with the same level of risk, or is it more risky. And of course as with any investment its about the level of trust you have for the broker you give your money to!

prudryden

Not like the stock market. You can buy a stock and its worst scenario is that it goes to zero. In the Foreign Exchange markets, you need to deal on high leverage and, therefore, you can lose more than your investment. In some cases, much, much more.

Forgetful

yes its a very high risk investment
U will at worse loose all ur money
do not believe your friend

prudryden

Would it be possible for you to give us more information? What currencies are they recommending you buy or sell and in what amounts? What are the margin requirements? What are the charges for executing the trades?

Is the broker a UK based company or offshore?

JonnyBravo

Follow the link and pay particular attention to rule 13

http://timesbusiness.typepad.com/money_weblog/2008/05/the-twenty-gold.html

jzi19

Forex - seems like a fast way of making money - equally fast for losing money.

Take a look at http://www.babypips.com/school/
The methods on that link explain the basics of technical analysis, where you look for signs on your chart for all manner of trends, indicators,etc. to indicate the direction a trading currency pair is going. However people also keep an eye on world news, which might also affect their value (fundamental analysis). I think there are automated forex trading accounts out there, as well as ones run by brokers on your behalf, but I dont know if Id trust someone taking the risk using MY money.

It seems like a full time occupation to be trading in forex - I dont think its something that can be done casually. Ive read on some forex forums warnings of dishonest brokers, where the currency information feed is not correct, designed to leave the client poor, but the brokers richer. From one stranger to another, I would say dont risk it.