When it comes to investing and making your money work for you, there are two things that come to most minds. The first is in stocks. The other is in real estate. Some people branch out, looking into bonds or other types of investment. Some might be considering the foreign exchange market.
So, when you start looking into the best financial advice on whether or not forex is a good choice, what answer would you get? Well, to answer that, let us first examine and define forex.
Foreign exchange is basically the buying, selling, and trading of currency. The market is open 24 hours a day and the money is traded. Not partial ownership in a corporation, like stocks, or actual products, like equities. You are trading in the currency used to acquire these things.
Yes, it does sound somewhat counterintuitive. However, it makes sense and some people do profit from doing this.
Forex is a 24-hour market. It never stops trading, except on weekends. It’s also a global market, with centres in London, Frankfurt, Tokyo, Singapore, and more. So any time of day, you can buy or sell whatever currency you fancy.
Thanks to the internet, currency trading is easier and more accessible than ever before. Anyone can do it since you don’t need any licenses. You just need a willingness to engage it and learn how it works. Of course, you also need to be willing to take the hit when you lose money.
Speaking of, how does one make or lose money when trading with money?
The basic principle is that when you trade your money for a different currency, you are hoping the new one increases in value. At which point, you trade it back to the initial currency. This leaves you with more funds than you started with.
For example, if you spend $1,000 AUD and purchase Canadian dollars at an exchange rate of 1.33, and then wait a week. You suddenly find that the Canadian dollar has grown in value. You sell your CAD for AUD. Thanks to the higher exchange rate, the AUD amount you get is higher.
However, this isn’t foolproof. It can backfire.
For instance, using the above example, if you wait too long, the CAD might dip in value instead. This means that selling it for AUD is actually a loss.
Foreign exchange trading is not like other investments, because it is quick. You need to take advantage of changes in value almost as soon as they occur.