For those who took basic economics lectures back in school, you must be aware of the term ‘Forex’. For those who might not know let me be of help to you, Forex is an abbreviation of the term for foreign exchange, which is the exchange of one foreign currency with your native country. Usually, the increment of the gross domestic product or GDP of a nation is often stabilized with a good forex income.
The trade market forces base the value of any currency but there are several other factors too like geopolitics of the nation, investment, and most importantly tourism. The demand factor may also occur through the initiation of major businesses between two or more different nations. Hence, the currency exchange and conversion may also appear in the picture. Today we will be uplifting some basic myths from investments and understand the know-how of the foreign exchange system.
- Forex market
You may not realize but currencies and their value every minute are important to the market. A Forex market id an exchange place for currencies from around the world. Allow us to simplify your understanding. Let us assume you decide to buy a bunch of tulip seeds from the Netherlands while you earn in dollars. The price of the product has to be exchanged into Euros by the importer of your country. Let’s get to the fun fact; all the conversion of currencies does not even take place in a specific place. The Forex market is working twenty-four hours a day but with the weekdays off. Sundays are closed for forex exchange. There might not be any major center of the Forex market unlike the stock market but Hong-Kong, Zurich, Frankfurt, New York, London, and Tokyo are some of the major Forex centers.
- Benefits of trading currencies
Before the internet, the trading of the currency was quite difficult. The big and multinational establishment could only do the currency trading. However, with the advent of the internet small retailers can also sell their products to the desired customer online as we mentioned above. It was quite difficult during the recession times of 2008 to maintain currency carry trade.
Currency carries trade- The process in which the high yield currency funds the low yield currency. ‘To sell high you got to buy low’ is what the principle motto of currency carry trade is.
A humongous amount of leverage is offered to the individual traders about smaller account balance in the trading by brokers. It is because currency trading is quite risky due to not having a standard regulation instrument to follow. The market however provides you with more liquidity.
Pros and cons
There are a few pros and cons when it comes to dealing with the currency trading world.
Pros- speaking of the Pros the small scale traders possessing limited funds or tiny amounts have easier managing time in trading. The possibility of returns is quite high and the risk is low.
Cons- In the case of the larger picture one must have an understanding of micro and macroeconomics along with the economic knowledge of various countries and they’re interconnected.
Finally, all we would like to suggest that before putting your money at risk practice trading at several stock stimulator website and application. Sharpen yourself enough then get in the game. Good luck.