Investment in foreign currency is gaining the attention of many investors. This foreign currency exchange is referred to as Forex. Though the idea of investing in forex seems simple and interesting, it needs a thorough knowledge on the end of the investors.
If you really want to be successful and achieve your investment goals, you need more knowledge and practice in this online forex trading platform than you might be expecting.
What is the Forex Market?
To be precise and simple, forex is the largest and the most liquid market in the world. According to recent research, the volume of the forex exchange market can exceed $5 trillion a day.
The forex market involves the exchange of currencies. Whether we notice it or not, this exchange is of great importance to carry out trade worldwide. Whenever we buy a product that is imported from another country, we are actually exchanging our national currency with the currency of that country.
Similarly, when we travel internationally, we need to exchange our currency with the currency of the country we are visiting. Hence, through the direct approach or indirect participation, we are a part of the Forex exchange market.
In addition to this, a unique feature of this market is its decentralization or virtuality. There is no centralized place where the exchange of currencies takes place.
All the exchanges take place over the counter through a network of computers between the marketers and traders all around the world. The Forex exchange market works 24 hrs a day for five and a half days a week.
The major financial centers of the world where the exchange of currencies takes place are
- New York
- Hong Kong
The market works across almost every time zone. It means that when trading hours end in New York, the marketing day begins in Tokyo. Hence, the market can be extremely volatile and active at any hour of the day.
Investing in Forex Exchange Trading
As we have mentioned earlier, almost each of us has been participating in the foreign exchange market. Whether you travel to another country or buy a product that is manufactured in a country other than yours, you are exchanging the currencies.
While selling or buying a currency for any purpose, you must have noticed a term exchange rate. This exchange rate refers to the price in US Dollars you buy a currency. These rates are changing regularly depending upon several factors such as projected economic data, economic news, etc.
Types of Investment in Foreign Exchange Market
Though you can make direct investment and can buy or sell foreign currency as an individual investor, there are many tools or software that enable you to participate in this market. We are listing down the most popular methods that will help you enter the forex market through a brokerage account.
When you invest through futures you buy an asset without having control. For investing through futures you can use stock brokers.
In currency options, you buy or sell a currency within a specific date or time. Options are like bets on the future. If specific goes in your favor you earn a profit.
Exchange-traded funds or mutual funds work by holding bonds and stocks but they are not limited to these assets. Funds are also in the form of foreign currency. Investing through funds is easier for investors who are not interested in managing their investments or feel nonqualified for that.
Benefits and Risks involved in Forex Investment
Just like any other investment vehicle, in online forex trading or foreign exchange investment, advantages and disadvantages come hand in hand.
Why is this market beneficial?
Flexibility of Time
The foreign currency exchange market works round the clock covering all time zones globally. Hence, you can select any time that is suitable for you to start and continue trading on this platform.
Liquidity of the Market
Forex is a huge market. It is accepted worldwide as the largest market. Traders can jump in or out of the market without worrying about the rise and fall of the market prices.
If you compare the forex market with other trading platforms, this market is the most accessible one. You d not need a huge investment to enter forex trading.
Highly Volatile and Less Predictable
The foreign exchange market is very volatile. You may face huge price drops overnight. In forex trading, you cannot count on financial reports or company guidance.