Learn How to Trade & Invest in Forex
Did you know that the largest financial market in the world, doesn’t involve stocks or bonds? This might blow your mind, but the largest financial market in the globe involves trading currencies.
I am of course talking about Foreign Exchange or Forex investing. How much bigger is the Forex market than the Global stock market? We are talking about several trillion dollars exchanging hands every single day that’s how big Forex investing is compared to stock market and bond trading.
This should not be a surprise. After all, every single day, products from one country go to another country, and people need money in their currency. If you’re selling goods in China for example, and you have US dollars, the people there that are going to be importing the stuff that you are selling need to pay you in dollars because you don’t spend Chinese money in the United States.
The same goes in reverse. If you are buying stuff from China, you can pay them in dollars but they have to convert those dollars into a currency they can use. This is why Foreign Exchange and currency trading is such a huge market. It is driven primarily by necessity and not by speculation.
There is a lot of speculation involved and people can and do quite a bit of money swapping one currency for another. This is due to the fact that there is a need for those kinds of exchanges.
The Basics of Forex Trading
As mentioned above, the underlying reason why there is such a thing as a Forex Market and Forex investing for that matter is the fact that businesses, whether they are importing or exporting or both need to exchange currencies to do what they are doing. We are not just talking about importing and exporting goods, we are also talking about selling services as well as financial services.
Just like the saying goes "money makes the world go round." The problem is, for money to do its job; money has to be on its proper form. Where ever it is that there is Global trade or trade between countries across borders, there will always be a need for Forex. Whenever there is a Forex market, there will always be an opportunity for Foreign Exchange investing. Why? There is always a fluctuation between the price currency sells for and a price that a buyer would buy that currency for.
These fluctuations mean tremendous financial opportunities. You can make money when a currency is going up in value, or you can make money when a currency is going down. What’s important is that, whenever there is an exchange opportunity, there is always an opportunity to make money. This is why foreign exchange speculation doesn’t fall far behind foreign exchange activity, they go hand in hand.
Currencies Are Traded In Pairs
When you say you want to invest in Forex, keep in mind that you are not just trading for the dollar. When you trade on the dollar, it has to be paired with another currency. There is no such thing as a Forex trading that is with a single currency.
You only really get to a value of one currency when you compare it to another currency. For example you know that the price of a dollar is going up compared to another currency. In one particular case when the US dollar is paired with the European euro, any "improvement" in the dollar is reflected in the fact that the euro went down in value compared to the US dollar. For Forex investing to make sense and for Forex investing to be possible at all, currencies have to be traded in pairs.
The most common pairs in Forex trading involve the US dollar and the Euro, the US dollar and the yen, the yen and the Euro, as well as the UK pound and the US dollar. In the global Forex market, the usual suspects that are often the most often traded currencies in pairs are US dollars, British pounds, European Euros, and Japanese Yen.
No Central Location When Trading Forex
Another crucial information about Forex investing is that there is no central exchange for foreign exchange. Foreign exchange is a global market. There is no one central market that dictates or calls the shots when it comes to Forex trading.
This should be fairly obvious, because the demand for the US dollar, the British pounds the European Euro or the Japanese Yen transcends borders. Most countries trade with each other. And there would always be a trading action that goes beyond boarders. as a result, there will always be localized markets for this and it’s not hard for banks to connect their servers to each other so that trading action can take place pretty much on an automatic basis.
Since trading is done through software, trading can be so efficient that it would work within a highly localized market or it would work in a larger market where a company looking for a particular currency would put in an order that can be met by a supplier that is willing to meet that price.
The Dollar Is King Of The Hill
Like it or not, the US dollar is the king of the hill when it comes to global Forex trading. If you are looking into learning Forex investing, you have to be at peace with this central reality.
Due to the political fallout and practical consequences of World War II, the global medium of exchange has remained the US dollar. The prices of oil, the price of gold, the price of all major commodities are always priced in US dollar.
This has tremendous advantages to the Green Bank. First and foremost, it doesn’t pay as much interest compared to other currencies. It gets this advantage because people all over the world hoard US dollars. When they do that, they keep US dollars from circulating and this dampens the inflation rate of the US dollar. This actually provides a tremendous competitive advantage to the US dollar, compared to the European euro, the Japanese yen and the British pound.
Since the dollar is in such high demand, there is a ready market for the US dollar. This is another key advantage of the Green Bank when it comes to Forex investing. It’s very easy to find currency pairing for the US dollar. Even if you are dealing with micro markets, and you are looking to trade a US dollar in a fairly restrictive market, there will always be traders looking for dollars, or looking to sell dollars. This can’t be said for other currencies.
Trade As Widely Or As Limited As You Want
Another factor to keep in mind when it comes to Forex investing is that more and more companies are offering restricted Forex investing opportunities. In other words, instead of trading a huge network of banks or other business entities looking to swap currencies with you, you can actually deal with just one company.
The company would use a globally recognized benchmark value for the currency pair that you want to invests in and your investment decision will be based on that, the company will either pay you or buy from you, depending on these prices. This is why in very restricted cases; it can be argued that such arrangements are very much like online casino arrangements.
If you are just dealing with one company and you are looking at the price fluctuations of the dollar, and you are making bets on either the dollar or the paired currency. The company is calling the shots. Basically, the company is either buying for you or selling from you. In such a situation, it would be like the company is acting like the casino house, In the case of online black jack. This has advantages and disadvantages.
The advantage is it gives you a lot of control; it’s fairly restricted and predictable. The downside is that there might be some manipulation or you might be hit with unfair fees. Keep these in mind when you’re looking for specific Forex platform for your Forex investing.
Learning to trade on the Forex Exchange is not very hard. There are many resources available online and it really boils down to return on investment. You have to focus on Forex bets that increase your likelihood of success and meeting your ROI. Keep in mind that there will always be a demand for a foreign exchange that’s not going to go away anytime soon.