Read on to find a few clever ways to invest in the foreign currency market.
Investing in forex has exploded in popularity over the past few years. Once viewed as something only for big businesses and money experts, more and more “regular” people have now dived into the world of forex.
If you are a complete beginner and want to enter the world of forex, or learn the ropes on how to invest, here are a few ways to begin trading currencies you may need to learn of.
When you buy currency online on S Money, you will see exchange rates floating everywhere. These exchange rates are constantly changing and are also how you can make money trading currencies
In simple terms, trading forex is about making a profit on the small changes in exchange rates. For example, if £10 costs you $11, you buy the £10, wait for it to strengthen against the dollar, then sell it again; you will get more dollars back compared to what you initially put in. This is the essence of forex trading.
CDs & Savings Accounts
A certificate of deposit, or CD, is another way to make money using currency. In simple terms, you deposit into the bank for a set amount of time, and in return, you gain large amounts of interest.
CDs are popular because you are rewarded with high-interest rates even though you can’t touch your money.
A foreign bond fund is a mutual fund that invests in foreign government bonds. The funds earn interest denominated in foreign currency. If the foreign currency increases in value relative to the local currency, the interest rises in relation to the local currency.
Another way to benefit from the currency market is simply owning stocks of international companies. Your profits and returns are increased if the foreign currency appreciates compared to the local one, which is, more often than not, the dollar.
ETNs & ETFs
ETNs (exchange-traded notes) and ETFs (exchange-traded funds) are similar to stocks. Instead of buying the forex directly, you can buy into an ETN or ETF and buy and sell the forex as if it was stock.
What to Remember When Investing in Currencies
When investing in currencies, especially if you are a beginner, there are a few things you need to learn and remember from the start.
Consider a Broker
If you are inexperienced or don’t trust your trading skills, you should consider using a broker. An authorized broker will be a person or entity who trades for you. Returns usually won’t be huge, but they will be consistent.
Types of Investing
If you want to go out on your own, there are three main types of trading strategies you should be aware of, and they are also the three you will most likely choose from.
When buying and trading currencies, minor exchange changes can be a chance to make money. Because of this, the scalping technique is used, which is designed to make small profits but to make dozens and dozens of them each day.
For example, if you see a position at 1.009, you buy it and then sell it when it hits 1.012 or 1.015. These profits aren’t big, but you can make good money if you do enough of them.
Day trading is one of the more common but riskier trading methods. In simple terms, you would open a few positions in the morning and then hold them until lunchtime, for example. While you can make good money doing this, the risk is very high.
The main problem with day trading is that you don’t stay invested long enough to fix any losses, unlike position trading, where ups and downs are expected and won’t often cause a loss.
Speaking of position trading, it is another term for long-term trading. Opening a position for a few months, or even a few years, and taking out your profits far down the line. While this method results in slow returns, it is far less risky.
Position trading allows for all the ebbs and flows of the market to not have any serious impact on your investment. Most established currencies grow over enough time, meaning any dips you have will be wiped out thanks to persistent growth.
Understand & Use Leverage
Finally, one thing that forex trading offers investors is the use of leverage. For example, a broker will offer a 10x leverage for those looking to invest, meaning if you invest $10, you can make it $100, thanks to the broker.
This is because forex profits can be so small on individual trades that investing a couple of dollars is pointless. Instead, you are able to invest larger sums of money, maximizing your potential returns.
If you are new to foreign currency investing and trading, following these steps will not only help start your investing journey but could also make it very successful. Even if you have no knowledge about investing, it is easy to learn the basics and get going in no time.