Most people have some experience with trading currency at some point during their lives, they just may not have considered it as an investment. With traditionally valuable investments like crude oil and business stocks not faring very well at the moment, forex trading remains an exciting, and potentially quite profitable opportunity for those in the know.
Trading one currency for another is forex at its most basic level but the difference between that and forex trading as an investment is that, rather than having the end goal of converting your dollars to euros for your trip to Paris, forex traders watch the value of currencies rise and fall, and try to make an educated guess on which way they will go. They then buy or sell the currency, attempting to make a profit. If the purchased currency increases in value after they buy it, then a profit has been made.
Where Did Forex Come From?
In ancient times, before money, there was bartering, but as this was replaced with the monetary system, more currencies appeared in different territories. It was determined that these currencies had different values to each other. The value of each currency is based on a number of factors including supply and demand, the level of inflation in that particular country, and a variety of other economic factors. For a long time, these differences in value could only be taken advantage of by governments and big businesses as the trades needed to be with very large sums of money. However, by the ’90s, the internet allowed trades to happen at a much faster pace as they could be done automatically, without involving a stockbroker on Wall Street.
Today, because of Internet-based and, later, app-based trading platforms, forex has grown to become the most widely-traded asset on the planet. And you aren’t just limited to world currencies; in 2009, the world’s first cryptocurrency, bitcoin was created, which started a chain reaction of cryptocurrency explosions.
Why is Forex So Popular?
So why is forex more popular than say, oil stocks, or NASDAQ futures? The main reason for the popularity of forex trading is because it’s so accessible. Trading forex can be done from anywhere with an Internet connection; on a laptop, tablet, or smartphone. And, unlike trading stocks, which can only be done in limited trading hours between Monday and Friday, forex can also be traded any time you like.
Another key factor in forex’s popularity is the thrill. Currency markets are naturally quite volatile, meaning that there can be large fluctuations in the value of investments over a relatively short period of time. A new starter, with a relatively small initial investment of around $200, has the potential to make a high profit because of this volatility. The volatility is accentuated by leverage; whatever you invest is scaled up by the forex broker through deposit bonuses, resulting in the kind of profit that you’d normally see from much higher investments. The downside to this is that your losses are also magnified in the same way.
Traditional stock markets aren’t as accustomed to volatility. Recently, oil prices dropped through the floor thanks to a price war and lack of demand. Investors saw massive losses, and the market could take years to fully recover — but forex markets see huge rises and falls on a daily basis, affected by hundreds of external factors. And because currencies are compared against other currencies, there is a mirroring effect whereas the price of one currency falls, another value must rise in comparison. This means that there is always some sort of profit to be made. Constant potential for profit, and a near-24/7 market makes for a very attractive opportunity.
So, How Do I Start?
First of all, decide whether you have enough spare cash that you can afford to lose. There’s no guarantee that you’ll make a profit, or even break even. After that, you’ll need to sign up to a forex trading site — also known as a forex broker. Their aim is to find the best possible price and conduct the trades on behalf of you. You can find the top online forex brokers by comparing them against one another on comparison sites. Look for sites that are easy to use and have good customer support. You’ll also want to check out how easy it is to make a withdrawal; you shouldn’t have to jump through hoops to get your hard-earned cash back.
Finally, it’s imperative that the broker you choose is regulated by the National Futures Association (NFA), or the Commodity Futures Trading Commission (CFTC) if it’s based in the USA. UK-based brokers have to be regulated by the Financial Conduct Authority (FCA). You won’t be protected if the broker isn’t regulated by one of these services.
Once the essentials are out of the way, you might want to see which brokers offer the most leverage or the highest deposit bonuses so you can get the most for your money. Start with a broker who allows relatively small deposits. The key is to remember to treat forex trading as a part-time business because it requires far more commitment than a hobby, but you can’t necessarily rely on it for a monthly paycheck. Take it seriously, learn as much as you can, and then stick to your plan.
Photo Credit: Csaba Nagy (Pixabay)