Trading Currencies as an Investment Choice

Trading currencies has been a method of making money, ever since currencies came into existence. But in the past, the major currency trading market, known as Forex was not available for everyone as it is now. It was restricted only for the major players such as banks and other financial institutions. Well, this is all history, because now you have the chance to enter this market with as minimum as $250, through the various online broker companies offering mini-accounts.

Software platforms vary, but there several forex currency pairs that dominate the market. Now remember that in this business, it’s all about currency pairs – USD/EUR, USD/JPN, USD/GPB, USD/CHF, and practically all types of combinations of the various currencies in the world. In the world of forex, you work with forex currency pairs. You buy one currency by selling another, for example you buy Euro by selling your US dollars, with the obvious idea of the Euro climbing against the dollar, so at the end of the day, you will be able to get more USD when you sell your EUR. In the context of all those currency pairs, the ones that truly dominate the market, and are responsible for about 80% of all transactions are the so called “major pairs” – Euro vs U.S. Dollar, US Dollar vs Japanese Yen, US Dollar vs Swiss Franc, and US Dollar vs British Pound.

currencyCertain Forex currency trading strategies can be applied to increase your chances of success, but nevertheless, we are talking about chances here. Risk is always a factor on the FX market. Therefore, you must be responsible. Lots of money could be made and lost at the same time, if things go in the wrong direction. Investors make assumptions, analysis, charts, trust their intuition, but the bottom line is that no trading system is perfect and unexpected events can occur all the time, such as the Katrina hurricane, or 9/11. Such events affect the market and the values of certain currencies. The forex currency pairs are influenced by political and economical factors. Interest rates and inflation rates are part of the economical aspect. Sometimes, entire governments make deals on the Forex market in order to change the value of their national currency. For example, the US government often employs a policy of keeping the USD low vs the EUR (the dollar is dropping against the euro) so that in Europe, goods produced in the US can be cheaper, and therefore, more demanded on the European market.

An interesting term that you will often hear is “leverage”. The leverage allows you to operate with cash much larger than you actually in your account. If the leverage on your account is 10:1, that means that with $250 you virtually have $2500 to buy and sell with.