If you are interested in investing in forex market it is essential that you know the basics of forex trading and learn how Forex investments can be profitable.
First let’s see what exactly is, Forex trading. The word Forex is an acronym for FOreign Exchange which is also known as currency trading. In a nutshell, when you invest in forex trading you are going to buy foregn exchange for a low rate and sell it when the rate increases to make profit. Forex investments can be considered similar to stock market in principle with some key differences which makes Forex unique.
Forex Market is open 24 hours for Investment:
Unlike the stock market, forex trading market is open 24 hours a day during the 5 business days in a week. This is because the forex trading market is global. While the stock trading is done through the national stock exchange, forex traders deal globally by exchanging currency of country for another. The traders observe the price movements and enter into a trade when they feel the price point is right, and then they exchange the currency back to close the trade to earn profit.
By the time the forex market in United States close the Asian market is open. Thus it is the foreign exchange market is open somewhere in the world all the time, except on weekends and non-business days. One of the major advantages of forex investments is that you can do trading at just about any time of day or night, according to your convenience. You might also have to take the currency pair and the trading system into consideration while deciding your trading time. You might want to learn more about the best time to trade forex.
Short Term Investments compared to Stocks
Another key difference between forex investment and stock investments is that, FX investments are not likely to be held for the long term. Stocks on the other hand can be held for months and years. Since forex is a highly volatile market holding on to trade for a very long time could lead to massive losses.
Nevertheless some forex investors might spot a currency of a fast growing economy which the traders anticipate to do well in long term investment. As I mentioned earlier this is a risky game since it any political or economical changes could drastically affect the currency value of a country in the long run. Hence most forex investors are not doing this. Instead they invest in short to medium term trades to make money quickly. Forex day trading is very common, and if a trade that is spread across few weeks would be considered a long term trade in the forex trading market.
Forex Investment Yields return even during Economic Crisis:
Each Forex trade involves a particular currency pair. (Learn more about currency pairs here.) And as you know currency prices are relative to each other. The value of one currency goes up and the other currency in the pair goes down. That means you always have an opportunity to make profit from the forex market if you invest in the right currency. But in case of stocks the value of all the stocks could go down in poor economic condition and could sore in a booming economy.
Forex is Volatile Market:
Like most of the other form of speculative investments forex trading is also risky especially so because the currency exchange market is highly volatile. If you are planning to do the trades on pure guess work, you could end up with losses. When you are investing in forex market you should be able to identify price movements and trends. It will take years of experience to develop a perfect trading system which can bring you consistent profits.
With the evolution of internet and advancement in software technology it is possible to make use forex trading software which handles all the trades for you. These software applications which are commonly known as automated forex robots or Forex Expert Advisor can be installed on your computer. But be careful when getting an automated forex trading robot since many of them do not work as they claim. If you are planning to utilize an automated forex software to manage your forex investments, then make sure that you get a reliable software like Fusion V1.1a from the Forex Robot World Cup.
Regardless of your choice, make sure that you trade on a demo account first and tweak the settings to ensure that your system is really profitable. Most of the forex brokers and Forex investment clubs offers demo accounts these days. So make sure that you are testing your system before making a serious Fx investment on a live account. This is highly important to protect your investments in your forex account and to maximize your return on investment.