FOREX market is a place where investors trade currencies such as Euro, Japanese Yen, Australian dollars etc. So what is FOREX? How can this investment last for so many years? And why do some people even lose their entire life savings through investing FOREX? First of all, we should understand what is currency trading which refers to the usage of a national currency in exchange of the currency of another country. The size of exchange will be in accordance with both exchange rates, the case is same as when we travel. Here is an example: Francis wants to travel to Europe. If the Euro appreciate or depreciate, this can affect Francis’ cost for the trip. When Euro appreciate to 1EUR : 1.5USD, $2000 USD can exchange for €1333. When Euro depreciate to 1EUR : 1USD, then $2000 USD can exchange for €2000. Thus, the more the Euro depreciates, the cheaper the trip to Europe will be. The 2016 British referendum resulted in Brexit. British Pound (GBP) has depreciated against all major currencies. Buying watches and bags in UK becomes much cheaper. In general, most currencies are priced against USD. For example, the Euros strength is priced against the USD (EURUSD). This is considered as “regular currency pair”. If the currency is not converted to US Dollars, such as the Canadian dollar against the Japan Yen (CADJPY), it is called “currency cross pair”. We can take profit from both bullish and bearish currencies. Say for example, Francis predicts the trend of Euro against Canadian dollar is going up, so she can buy or we say long EURCAD. If she is bullish of Canadian dollar over the Euros, then she can short EURCAD The main direction of foreign exchange movements is dominated by the fundamental analysis. The technical analysis affects the short-term impact on foreign exchange. Every national publication of economic data and policies, such as raising or cutting interest rates, monetary policy etc. will affect the foreign exchange rate and its trend There are four benefits of investing in foreign exchange First, there are lots of tools given to choose when we want to trade forex. They are cash, currency ETF, leveraged foreign exchange and futures. Second, the foreign exchange market has been hailed as no bulls and bears because forex is relatives. One goes up, another one will go down. Third, Forex market operates in twenty-four hours during the weekdays. The time of investment is flexible Fourth, forex is the largest market in the world. It has the most liquidity among the trading markets. That’s why almost no monopoly pricing occurs, and almost all foreign currencies are aligned with the economic data. Investors theoretically will not lose for no reasons Theses are the advantages of foreign exchange. There are also different kinds of currencies such as carry trade currencies, hedging currencies and commodity currencies. So what are they? Example 1, Francis is a professional investor. She looks for a country which offers a low interest rate for loans. She will then borrow that country’s currency and invest in some assets with higher rate of return such as stocks. However, when there are uncertainties or worries in the market, investments become dangerous. Francis will temporarily return the borrowed Yen. The Yen will then be stronger. When the market has been led to this situation by the negative atmosphere, we call it unwinding, and this kind of low interest currency is called carry trade currency. Example 2, when there are some uncertainties or events happening around the world such as 911, European debt crisis, Brexit etc. Apart from buying Japanese Yen, Francis would also transfer money to countries with economical stability. Swiss Francs is one of the examples. As Swiss is a neutral country which does not involve in the political and economic problems over the world, theoretically they have a lesser chance of facing a large fluctuation. Therefore, it makes Swiss a place to hedge other market risks Example 3, Francis also likes to invest in some commodity currencies, which means the nation of the currency export abundance of commodities. For example, Canada’s oil exports: the export of gold and copper in Australia, agricultural product exports in New Zealand. Such country’s currencies are closely related to the commodities. Their trends with commodities are usually higher correlated. When some economic data or commodity price brings an investing opportunity, Francis will invest in commodity currencies like Canadian, Australian or New Zealand dollars. When all of you understand the benefits and the usage of investing tools of foreign exchange, it is possible to design appropriate strategies for your portfolios. =============================== YouTube: https://youtube.com/channel/UCc33m48vLcYXxgfnwtytK-g Facebook: https://facebook.com/161384107682138
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