Investors Goal

Investors Goal

The investor's goal in Forex trading is to profit from foreign currency movements.
Forex trading or currency trading is always done in currency pairs.

For example, the exchange rate of EUR/USD on Aug 26th, 2003 was 1.0857.
This number is also referred to as a "Forex rate" or just "rate" for short.

If the investor had bought 1000 euros on that date, he would have paid 1085.70 U.S. dollars.
One year later, the Forex rate was 1.2083, which means that the value of the euro
(the numerator of the EUR/USD ratio) increased in relation to the U.S. dollar.

The investor could now sell the 1000 euros in order to receive 1208.30 dollars.
Therefore, the investor would have USD 122.60 more than what he had started one year earlier.
However, to know if the investor made a good investment, one needs to compare this
investment option to alternative investments.

At the very minimum, the return on investment (ROI) should be compared to the return on
a "risk-free" investment. One example of a risk-free investment is long-term U.S. government bonds since there is practically no chance for a default, i.e. the U.S. government going bankrupt or being unable or unwilling to pay its debt obligation.