When it comes to investment opportunities, most individuals simply think of stocks and bonds. However, there are many other ways to invest money and to play different kinds of markets. One form of trading that often goes under the radar is currency trading. This is the act of trading one currency for another, and as each foreign market alters and changes, so too does the value of the currency. While currency trading is usually a slower process for gaining rewards and improving upon the amount of money earned, it is a valuable asset to look into, when it comes to investments.
Each market is going to change, as there are many different reasons as to why one market might rise or drop in comparison to another market. While there are financial reasons as to why one currency might increase in value, there are other, external elements, such as the risk or threat of war, natural disaster (such as a hurricane or earth quake) and job market information. This is enough to cause a market to increase or decrease in value.
When one market looks as if it is going to increase in value, it is possible to purchase, or trade, the currently held currency for another. This is especially the case if it looks like one currency, that you might already hold money in, is going to drop, due to expected drops in employment and business potential. Regardless of the situation, it is possible to earn a living and to turn currency trading into a potential investment opportunity. It is just necessary to monitor all of the markets in order to stay on top of this practice. This way, you are able to see possible signs towards what currencies are going to go up, or avoid issues with the value of your currencies going down. All of this should go a long way in turning the currency trading into a beneficial investment opportunity.
The foreign exchange is a marketplace for people to go to trade different currencies. The main players for the foreign exchange are bankers, especially large international banks. Except for weekends this marketplace is a round the clock service for all types of buyers and sellers. The two types of trading platforms for the foreign exchange are the EBS and the Reuters’ dealing 3000.
WHAT TYPES OF LEVELS DOES IT OPERATE AT?
Behind the curtains the banks turn to smaller institutions and they become the “dealers”. These dealers are involved with large numbers of currency. These guys are known as the “interbank market”. Because they people deal with millions of dollars every day they appoint supervisors who oversee the day to day activity.
SO WHAT HAPPENS DURING A TYPICAL TRANSACTION?
One party will buy a specific amount of one type of currency with the aid of another type of currency. Now after World War 2 the Bretton Woods System established certain regulations. Prior to this they were relying on the exchange rate regime, but after the war they witched to a floating exchange rate on their currency that was bought and sold.
SO WHAT MAKES THE FOREIGN EXCHNAGE SO UNIQUE?
- The trading zone represents some of the largest liquidity that is present in the world.
- The use of leverage. Depending on how you utilize the leverage you can increase your profits and minimize your losses. So you don’t have to take as much of a direct hit, than say if you were using other services.
- The market is always open, except for the weekend. It is open from 20:15 GMT on Sunday till about 22:00 GMT on Friday. So you can buy or sell at any time during these hours.
Certain firms that specialize in the foreign exchange calculate the turnover rate of a bout $4 trillion. As of 2010 this rate represents a 20% growth.
What to Consider When Investing in Forex Markets
Trading in Forex markets is particularly difficult given the vast number of things that need t be considered by investors and traders. Macro and micro conditions are important when trading in forex markets and this article will provide some insight regarding what forex trading is and the significant factors that need to be considered.
What is Forex Trading?
Forex trading stands for foreign exchange trading and involves the trading of different currencies. Foreign currencies are constantly fluctuating based upon a variety of different reasons and trading in forex markets can be immensely profitable if done right. For companies, forex trading is sometimes done to hedge against the risks of having operations in foreign markets. For example, if a company has a significant amount of sales in a foreign currency but owes debt in the United States, they may want to hedge against the currency risk that their foreign sales will not be devalued due to currency fluctuations. This sort of forex trading provides some protection for these companies and is a form of risk hedging. Individuals, however, typically trade in forex markets as a way of seeking speculative income from their trading.
Factors to Consider in Forex Trading
When trading in forex markets there are both macro and micro economic conditions that must be considered. Macro conditions are those that impact an economy overall while micro conditions are those that are company or location specific. Macro factors such as political issues, unemployment, and environmental issues can all impact currency valuations, while micro conditions that impact large companies in a country can have an impact on forex markets. Traders need to be cognizant of major items impacting macro and micro economic environments when trading in forex markets.
Further, other technical analysis can be applied to chart forex markets including regression analysis and moving averages. Comparing one currency that may be a market leader along with a market follower is one way to identify opportunities in forex trading. If a market leader breaks a technical indicator such as falling above or below a moving average this might spot that the market follower will do the same and a forex trade can be entered into accordingly.
Forex trading can provide a great opportunity for traders to profit by spotting price discrepancies in currency markets. To do so, a trader should be cognizant of qualitative and quantitative factors including news and economic market conditions, as well as technical analysis such as moving averages and regression analysis.
Trading foreign currency on the open market, also known as forex, is a highly aggressive investment strategy that can be a source of great satisfaction and income for those who are looking for a more excitement than traditional blue chip stock investing can provide. The potential for profits are great and can be maximized by trading online rather than through a brick and mortar brokerage. Here are some tips for trading forex online:
- Choose an online brokerage with a reputation. Finding a brokerage that has been in business for at least ten years ensures you are working with a firm that has both experience and staying power. Having longevity online also attests to the firm’s ability to meet the needs of their clients.
- Choose a brokerage that is regulated. Being a financial institution that deals with securities trading, brokerage houses (both online and retail) are subject to government oversight. Check with the brokerage to determine whether or not they have recently undergone a review by a recognized oversight body.
- Check to see if the brokerage has any complaints lodged against it. Of course it is important to check with the Better Business Bureau, but reach outside of the BBB and see if you can find any legitimate complaints. Be careful of those that seem to have an overwhelming number of positive comments as well as some unscrupulous brokerages will write their own positive reviews or pay for positive reviews to be posted by others.
- Check the brokerage’s site, trading platform and fee structure. At the end of the day, your success or failure in forex trading will come down to timing. Make sure that the broker’s website is up and running, has a user-friendly platform that makes sense, and has fees that are in line with other brokerage houses.
By following these few tips, you can be trading forex online in a very short period of time. Most online brokerage accounts can be set up a just a few minutes and have you trading the same day. Online brokerages also have quite a bit of research information available as well as educational materials to help you improve your odds of profiting from forex trading.