Unknown to a lot of people, engagement in foreign currency trading can bring income. How is this? You buy a particular currency and sell it when the exchange rate goes up. The difference between the buying price and the selling price is your profit or income. Before you join the FX market, it is important for you to learn to trade forex, with your different chosen currencies.
Trade in the foreign exchange market is “buy and sell” of different currencies and the involved mechanics in this undertaking is so simple. If you understand the process of trading company shares in the stock market, foreign currency trade is not so different. The foreign exchange market had become more popular in the past few years because of the advent of the internet. Trading had become easier and more convenient. You can then participate in the trading, invest some money in the currency market then sell said currency when its exchange rate goes up. When you learn to trade forex, you can expect extra income but do not forget that this venture has some risks because currencies are in some ways volatile commodities.
Learn to trade forex – how to buy and sell foreign currencies
There are a few basic things to understand when you want to learn to trade forex.
• Foreign exchange is the act of buying a particular currency whose value has the tendency to appreciate then selling it when the exchange rate goes up. The difference in its value is your profit.
• The buy and sell process is done in pairs of currencies. If your country has US dollars for your currency, this is one part of the pair. Then choose a foreign currency to buy using your US dollars, Euros for the second pair. Later you sell your Euros in the FX market and get US dollars for payment. You have the dollar difference which constitutes your income from the trade. You can choose any currency that you think has the tendency to appreciate in value such as Japanese Yen.
• You should be familiar with the three-letter notations for foreign currencies, USD for US collars, JPY for Japanese yen, EUR for Euro and more others.
Two methods used in analyzing foreign currency market
Furthermore, to learn to trade forex, you have to comprehend the factors that can cause the changes in the value of foreign currencies. The forex market way of analyzing this is via the technical and the fundamental analysis methods. These methods will be your guide on what foreign currencies to invest in.
• Technical analysis is studying the trend of the currency value in a period of time. You can do this manually but you can make use of software for this purpose.
• Fundamental analysis is studying the factors that affect the change in value of the currency like political and economic conditions.
Basic factors affecting changes in foreign currency rates
Currencies are issued by the country’s respective government. In order for the currency to have a good value, the country that backs it must be strong. A country that is politically weak will have weak currency so investors would not invest in this currency. With low demand for the currency, its value tends to go down and FX traders will lose.
There is so much to understand about the economic factors. Among these are supply and demand behaviors, unemployment, inflation, debt, interest rate, growth rate and trade balance. All these are measures of the economic stability of a country which can also affect the fluctuation in the value of the country’s currency.
In your desire to venture into foreign currency trading business, you should try to learn to trade forex in a systematic way. Make a study of the periodic change in the value of the currency you intend to invest in. Then, check the country’s political and economic conditions, factors that can make you gain or lose money in foreign currency trading venture.