You have probably traded stocks before, but have you ever traded currencies? Currency trading goes back thousands of years and was the first market used by nations, traders and merchants to facilitate the open market process. The trading of national currencies has its own market called the Forex, which is an abbreviation for The Foreign Currency Exchange Market. The Forex Market allows individuals, companies, banks, governments and nations to take advantage of currency fluctuations in the world market to profit from judging the correct direction a currency moves against another currency. Currencies are traded as currency pairs.
The Stock Market:
The stock market has been one of the more traditional ways to make a profit from an investment. You often hear how the stock market can make a person more money from an investment than just about any other market. While you can make double digit profits from the stock market, and it usually produces more of a return than CD’s or bonds, it is not always the easiest market to participate in. With tens of thousands of companies to choose from when investing, it can be downright daunting. Of course you can stick with mutual funds or index funds and make low double digit gains; it is still difficult to perfect a system that can make more than 10 to 15% on a yearly basis. The stock market can be complicated to say the least. Not only do you have to really do your homework, but you never know when a company will decide to go bankrupt or fold altogether. Penny stocks are notorious for losing people money. The large cap stocks are decidedly better, but we all know what happens when a rogue CEO gets in trouble…the company’s stock tanks. There is a lot of risk and uncertainty when trying to play individual stocks while going for 20 to 30% gains in short periods of time.
The Forex Market:
The Forex Market is a lot simpler and tame compared to the stock market. However, it can take more self education than the stock market since there aren’t as many TV and radio shows dedicated to Forex or FX Trading. Since the Forex Market is an over the counter (OTC) market, by definition it is an open, worldwide market with no central trading floor. If it were a market that had one central trading floor, it would be unable to be open 24 hours a day for traders. By definition and not by obligation, the Forex Market is open to everyone and it is open 24 hours a day, five days a week.
Forex Trading takes place with currency pairs, which are two currencies that are traded in relation to each other. Some currency pairs are more popular than others, so the need to learn all of them, and there aren’t that many, is not absolutely necessary. The key to trading Forex Markets is to develop a good strategy and stick to it. When you get to know a currency pair and your research points you to a certain position that you feel will make you a profit, you can then work that position all day and night if you wish. This allows for potentially much greater profits than you can find in the stock market. If you enjoy doing your own research and not simply following what everyone else does, then the Forex Market may be the perfect investment tool for you.