In a digital age, the concept of open borders has never been more of a reality. As the world gets smaller, so does the concept of sovereignty, at least in so far as trade and resources. Within the past decade, there has been a rise in trading foreign currencies. It is called Forex trading and it is the gamble that one currency will respond concerning another. This comparison is typically called a pairing and represents the fundamental nature of Forex trading.
What is Forex?
Forex is an investment opportunity, but like all investment opportunities, there does exist risk. To minimize the risk involved, there are a few lessons to keep in mind. The first is to choose a single pair but no more than two pairs to focus on. Choosing pairs requires a lot of research about socio-economic and political considerations. In the stock market, there are both long and short term strategies to consider. Some involve looking into the long future for increases in currency value. This would mean purchasing currency at a low rate and waiting until it increases value. A perfect example is an Iraqi dinar. If you do not have a lot of knowledge about the Iraqi dinar, you need to get more information from dinares gurus.
How does it work?
There are typically several platform sites that offer Forex trading. These sites typically take a small investment and lump it in with a larger group. This helps to increase the potential earnings involved when it comes to subtle currency changes. The concept of investing in a market with a 200:1 or 50:1 return is exciting. However, it also greatly increases the risk involved. Money is made in tiny changes in the currency called pips. Every pip is measured by how a currency is doing in comparison to another. For example, every single USD equals .89 EUR. If the belief that the EUR was going to increase in value than .8900 is low. It would be advantageous to purchase EUR and hope that it increases before selling it for USD. This means that when the EUR goes to .8910 one could sell it for USD and increase of 10 pips. That is how money is made.
Top 8 currencies to pair
United States Dollar (USD)
The USD represents one of the denominations for a majority of the world. When choosing a currency to follow, the USD is at the top of the list. Not only do the trading regulations and Federal Reserve make following trends a little easier, but it is common.
The Euro represents the currency of over 19 European countries. The collaboration within these nations is simple, like that of the USD. They have a single governing body to control the financial stability of their currency. The European Central Bank holds the right to distribute banknotes as they see fit.
Japanese Yen (JPY)
The JPY is managed by the Bank of Japan and dates back to 1882. They remain the third largest bank in the world. When the US and London trade markets are closed, the JPY is open. This makes pairing the JPY with a western currency a good option.
Great British Pound (GBP)
Colloquially called the “Queens Currency,” the GBP is run by the Monetary Policy Committee. The MPC is similar to the Federal Reserve and meets a dozen times a year. The currency is not as stable as the Euro. In other words, it offers greater risk and greater reward.
Swiss Franc (CHF)
The Swiss Franc is also called the “Bankers Currency.” Unlike other monetary organizations, the Swiss National Bank is a corporation. Their corporation operates under special regulations, but they are none-the-less a business which means tighter control of interest rates and less volatile markets.
Canadian Dollar (CAD)
The CAD represents a safe and stable currency. The Bank of Canada is its entity, like the Swiss National Bank, but focuses on efficiently managing public debt. This is a strong option for anyone looking for stability against lesser-traded commodities like oil or metals.
South African Rand (ZAR)
Managed by the South African Reserve Bank, the currency market can be extremely volatile. There can exist swings in currency upwards of fifty times that of the CAD, EUR, or USD. The ZAR may pair well with a more stable currency like the CAD.
Australian Dollar (AUD)
With some of the highest interest rates in the world, their currency is focused on long-term stability. They are relatively stable and have unique ties with commodities like silver or gold.