I'm sure you know what Forex trading is. It is one of the most talked-about things right now. But what is it exactly, and how can a regular person make money with it?
Forex is short for foreign exchange, which is also written as "FX." Stocks, options, and commodities get more attention than the foreign exchange. But the foreign exchange market is the largest in the world, and it gives investors a huge chance to make money.
When you trade on the foreign exchange, you buy and sell currency, not stocks or bonds. Forex trading is nothing more than buying one currency and selling another. You either make or lose money when exchange rates go up and down.
You don't invest in a single company or even a group of companies when you use Forex. You are putting money into the economy of the country. You are betting that the economy of one country will do better than the economy of another country.
For instance, say you're looking at the US Dollar and the Japanese Yen. Your research seems to show that the US dollar is undervalued and is about to go up in price, while you expect the Japanese Yen to go down in price. In this situation, you would buy US dollars and sell Japanese yen. You make money if you are right and the exchange rate goes up.
So it should be easy, right? No, actually not. Because there are so many things that can cause exchange rates to change, it can be very hard to predict currency prices. And you must remember that you always trade in pairs when you trade currencies. You buy some currency and sell some other currency. You can't just look at the economy of one country; you have to look at the economies of two.
You don't have to stick to just one pair of currencies, though. There are a lot of different ways to spend money. But if you are just starting out, I suggest you stick to the seven major currencies:
USD - US Dollar
EUR - Euro
GBP stands for "British Pound."
JPY - Japanese Yen
Swiss Franc (CHF)
AUD stands for the Australian Dollar.
CAD stands for "Canadian Dollar."
Most small investors focus on just these seven currencies when they trade.
