An Introduction to Forex Trading

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Forex trading is one of the most dynamic investment options in today’s markets. In its simplest form, forex trading is all about determining how currency pairs behave with respect to each other, and then investing on the currency that you expect will rise in value. If you correctly invested on the currency that subsequently rises in value, your investment grows allowing you to profit from the venture.

Now, there are many ways to take advantage of the forex dynamics in today’s market like on Forex Loft. The biggest corporations and wealthiest investors, for example, purposely buy assets like government bonds in a foreign market using foreign currency. When the currency appreciates versus the dollar, they can liquidate their assets to realize a profit. In other cases, citizens of a country, say Canada, can open a local savings account in US dollars and then play with the varying exchange rates to realize a profit. When the US dollar decreases in value, the investor can buy more US dollars which they can then sell with the currency value increases. The investment essentially follows the most basic mantra of “buy low, sell high” for investors.

Technically, however, these are not forex investments because they don’t take advantage of the daily fluctuations of currency pairs. True forex trading is often done through online forex brokerage accounts. From there, you can instruct your broker to purchase assets or units in a specific currency and then sell when the price is favorable for a profit.

To understand this, let’s look at an example. Suppose you have an online brokerage account with Company A in the amount of $10,000. On Day 1, the USD-EUR exchange rate is 1.3262 and you instructed your broker to buy USD 1,000 worth of Euros which yields EUR 754. Two weeks later, the USD-EUR exchange rate is now 1.3639 meaning that that USD has appreciated versus the Euro; you then instruct your broker to sell your EUR 754 back to USD. This transaction yields USD 1,028.39 or a profit of $28.39.

It is also possible to invest in forex using binary options but many still regard this with suspicion owing to the all-or-nothing” nature of the investment; as such, more research is required before one decides to work with forex using binary options.

Overall, however, the profit potential and liquidity of forex makes it a very attractive investment option. Like all investment options, it will require some degree of research and familiarity but once you get passed the initial learning curve, you can be confident that it’s an investment well-worthy of your time, effort, and capital.