In forex trading, if you make a profit who’s losing out?
Also, how does forex trading affect the economy?
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Tagged with: economy • Forex Questions • trading
Filed under: Trading Forex
Forex market is a place where you can earn profits despite of the price trend. Trader can make profit when the price increases and when the price decreases. There are two choices when a trader decides to open a position. Traders either buy a currency pair at ask price when he/she thinks the price of the currency pair will increase or sell a currency pair at bid price when he/she thinks the price of the currency pair will decrease. When the price of a currency pair increases, the base currency is becoming relatively stronger than the secondary currency. When the price of a currency pair decreases, the base currency is becoming relatively weaker than the secondary currency.
Anyone who lose in their trade causes someone to make profit. Lets say the price is in an uptrend. To make profit, you should buy the currency pair. However, there are people who hold different opinion than you do. So they sell the currency pair. If the price went up, you make profit and those who sell it make lose. If the price went down, you make profit and those who sell it make profit. It just goes that way.
Price quoted in forex market represent the strength of one currency over another. If a currency of one nation continuously goes down, i.e. weakening, it affect the import and export activities. Trading with this nation is cheaper. On the other hand, it is more expensive for this nation to trade with other nations. Therefore the money is flowing out from this country and the economy of this country goes toward inflation. Vice versa.
the government
Forex trading is an open system so it’s not possible to know who’s losing money or even if ANYONE is losing money.
Even if you buy and sell with the same person you can’t be certain they’re losing money. How? You buy at 8 from trader A and later sell at 9 to trader A. You’ve made 1 pip and you might thing trader A has lost 1 pip. Buy what if trader A was flat, bought at 7 from trader B, sold to you at 8 to make a profit and get flat again then initiated by selling to trader C at 10 before buying from you at 9 to make another pip and get flat again?
The profit that traders make in Forex comes from the difference between the bid and offer. True hedgers are happy to pay the offer (or sell the bid) because they have true foreign currency risk they want to hedge. Think of a U.S. based company that does business overseas and thus has foreign currency risk. They don’t want to make money by speculating on the FX movements, they want to make money by making widgets and selling them in the U.S. and overseas. Traders B and C in the above example might just be brokers executing true hedging transactions for clients. If both B and C made money by manufacturing, selling and exporting widgets then NO ONE lost money.