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Believing one of those advertisements where we find “earn 300 pounds in a day” can really make us lose a lot of money, or open the door to an alternative way of earning money, it all depends on the approach. Underlying these hopes is the concept of earning with Forex, a simple way to make money, but only apparently.

In this article we will understand what Forex is, why it is so fashionable at the moment, how it can be used to make real money and what are the main pitfalls it hides.

What it is and how it works

There is a lot of information about Forex on the net, but I haven’t yet been able to find an article that explains how it works in a simple way, so I looked into it in depth and decided to try to explain it in a comprehensible way. Wanting to make money with Forex means buying dollars today, hoping that tomorrow the pound will increase its value on the dollar. If tomorrow the pound/dollar exchange rate is more favourable, by changing it back into pounds, we have gained, otherwise we have lost.

This is of course just an example, in more specific terms using Forex to earn means operating in the Foreign Exchange Market, a financial market where currencies are quoted one against the other (the pound/dollar example above) trying to get it right.

In practice we “bet” on the fact that one currency will “take value” on another, a concept that is applied to many currency pairs. In the following mirror I report the list of the most traded currencies today:

In practice, therefore, you open an account on the Forex site of a SIM, a joint-stock company that carries out the activity of securities brokerage (movable, NOT real estate!) and, thanks to the online tools made available, you try to earn money by investing money on a currency pair, indicating which one you hope will “rise”, that is to say it will increase in value compared to the other one. 

To clarify this concept, I’ll show you the image of the dashboard of one of these sites, just to show how easily you bet on one or the other currency:

Do you earn or lose with Forex?

In general you lose, because, if you bet on one or the other currency, at random (i.e. what more or less everyone does) you have a 50% chance of getting it right, so, in the long run, you would get even, except that, on each operation, you pay a total of commissions to the broker, i.e. the company that allows us to operate on this market. Relying on chance, therefore, in the long run, you will no longer lose.

The SIM that manages the exchanges, instead, always earns us, because it doesn’t risk anything, it limits itself to take part of our money for every operation that we carry out, always earning. Let’s make a simple example:

Let’s suppose that, for the currency pair pound/dollar (GBP/USD), the cost of purchase is 1.2500 and the cost of sale is 1.2504, this difference is the broker’s gain. So, if we bought 1 dollar and the pound “appreciated” against the dollar up to 1.2504, we would not have earned anything yet, because, selling it, that 0.0004 will go directly to the broker. If it rose to 1.2510 we would have gained 0.0006, that is 1.2504 – 1.2510. These commissions should be the only commissions applied by brokers, a good broker does not ask for other commissions, cheating ones do.

Since people are easily attracted by simple ways to earn, Forex has experienced exponential growth, so much so that it moves billions of dollars every day. It is estimated that only 15% of the people trying to make money with Forex can make it, while 85% are losing out, precisely because of the 50% concept I mentioned above.

It should also be specified that, in this market, when you earn 100 pounds, there is definitely someone who has lost 100; for this reason, that 15% of people who know how to make money with Forex, take all the money invested by the remaining 85% who, being fooled by advertisements extolling easy gains, inevitably lose everything.