Forex and Investing in Foreign Currencies
Building a diverse investment portfolio is crucial to ensuring the stability of your wealth and income. Not all assets appreciate or increase in value at the same time or at the same pace. The more diverse your investments are, the less pain you will feel if one asset is temporarily underperforming. This is because of hedging.
If you already hold a diversified portfolio and believe you are knowledgeable in the area of investing, then you may be ready to expand your investments into the Forex market. Forex or FX stands for foreign exchange. When the United States dollar takes a plunge or experiences a lack of growth, markets in other countries can be doing quite well. If you are trading Forex, you can find profitable opportunities even if the US economy isn’t performing. In FX there is always a trade that you can draw a profit from.
The Forex market is the biggest market of all, with trillions of dollars traded every day. The number of participants is vast. A lot of money can be earned and rather quickly, too. This market is the dealing of foreign currencies based on the exchange rates between two currencies, five days per week, except for major holidays like Christmas, New Year and Easter.
Two currencies are always involved in every exchange or trade. Once currency is exchanged with another. For instance, if you believe that the Euro is about to increase in value, then you may offer to buy 100,000 Euros for $1.10 and later sell it at $1.25 – making a possible $0.15 per Euro purchased and sold. Here are a few things you need to know about how to get started in the FOREX market.
Learn how the market works
Trading on Forex is generally more difficult than the regular stock exchange because the stock market is expected to appreciate in the long term. The Forex market is moving in different directions, hour-by-hour and day-by-day. It is easy to lose money quickly if you do not know what you are doing. In order to prepare people to adopt Forex trading, most online brokerages have courses, webinars and tools that provide training. Brokers also offer a demo account with “paper money” to practice until you start being able to see a profit and build confidence regularly. Don’t start real trading until you feel ready.
Forex is very different from stocks
Since all Forex deals require a broker, your money is safely held with your broker and withdrawals from your account are normally processed within 24 hours with most companies. The barrier to entry with trading Forex is very low. This is because you are actually using the broker’s money to make the deal. When you trade Forex, you receive a sort of “loan”, this is called leverage. Leverage gives you an operating ratio of up to 500:1 or even more with some brokers. This means that with leverage of 100:1, for $3,000, you actually have a buying power of $300,000.
Forex is favoured by many professionals because there cannot be any insider trading. Dealing with currencies means that events that affect the market would make international news; no one organisation can influence global economies. Anything with significant influence on the price of a currency would be known almost immediately around the world. Everyone has access to the same news. If you are a Forex trader you will need to keep your finger on the pulse of what’s happening all over the world, not just in one industry or country. This will help you to determine the state of national economies and be able to predict their currency fluctuations.
High liquidity and low transaction fees
The currency market is moving at all hours of the day. Many trillions of dollars are exchanged in a single day. Because of the enormous volume, there is always someone who will be interested in buying or selling dollars, enabling you to have a very quick entry and exit when needed.
Many brokers do not charge you a fee when you make a Forex transaction if they do, it is very low in comparison to other markets. This enables you to be able to earn more from the amount of money that you invest. Brokers make their money through the spread of what is sold, the difference between what is bid and the actual selling price. Many brokers offer very competitive pricing.