There are hundreds, if not thousands of ways to make your money work for you these days. One of the most popular ways is forex trading. Short for “foreign exchange,” it refers to the practice of exchanging one currency for another at an agreed price.
Around $4 trillion worth of transactions takes place each day on forex markets. And it’s proven to be lucrative for many an investor. If you have heard of forex trading in the past but don’t know much about the topic, you’ve come to the right place. Keep reading to learn more about this fascinating way of making money!
Image obtained via Wikimedia Commons
The basics of forex trading
As you already know from the previous two paragraphs, forex trading refers to the act of buying one type of currency for another. Currencies appreciate (rise) and depreciate (fall) because of many different factors. Examples include economics and politics.
The idea behind forex trading is that you speculate what will happen next in the market and make a profit from your predictions. The concept is akin to betting in many ways. For example, with betting you are speculating on the result of a football match, golf tournament or game of tennis.
The only difference between forex trading and other markets is that there are no physical goods getting traded! An advantage of forex trading is that the market operates 24 hours a day. That means you have plenty of trading opportunities on a global scale.
Forex trading begins on a Monday morning in Wellington (New Zealand) time, closing on a Friday night in New York (USA) time. During that timeframe, you can trade currencies at any given time. People enjoy forex trading because there are few price jumps (i.e. price gapping).
How to trade
The beauty of forex trading is that it is a “leveraged” market. In other words, you only pay a small percentage of the full value of your trade. Forex traders can enjoy higher profits than with conventional trading. The only downside is that any losses you make will also be higher than usual.
Still, it’s all about risk management. As long as you have a system in place and don’t get greedy, you can minimize your chances of taking a hit from any bad trades.
Thanks to the marvels of the Internet, you can easily perform forex trading online. With sites like ACM Forex, for instance, it’s possible to trade currencies from the comfort of your own home. There are also physical stores where you can do foreign exchange trading. Although, as you can imagine, they aren’t as popular as online services.
What can affect currency prices?
You might think that the price of currency is just down to the laws of supply and demand. However, other factors can shift the price of your traded currency to your favor or against it.
For example, if there is any political or economic instability, the value of the currency you buy could go down. Sometimes, unforeseen circumstances can also affect prices. I’m talking about natural disasters like earthquakes and so forth.