Reaping the financial benefits of exchanging foreign currencies for profit isn't just the domain of banks. The foreign exchange market, known as forex, is a decentralized market used for trading currencies. There is little supervision and if done right by someone who knows how to read the market, it can be very lucrative.
Starting with Biblical times, the idea of money-changers was considered commonplace. During medieval times, the Medici family created the nostro account book which had two columns that had information about local and foreign currencies. This spread to other countries but it wasn't until the late 19th century, when the gold standard was adopted, did forex become a mainstay.
The modern concept of trading currencies is very simple. It's based on a currency pair that is traded against each other. For example, consider the U.S. Dollar (USD) and the Pound Sterling (GBP) pair. If you believed that the GBP was going to be more valuable than the USD, (i.e. £1 = US$1.7) then you would go long on the GBP. Trading is done through brokers who are regulated by the National Futures Association.
Why Trade Forex?
For some, Forex may seem complicated, like stocks but unlike stocks, forex is narrowly focused. There are less than 10 major currencies to use, which leads to less confusion and a clearer picture. It is the most liquid market in the world as you can buy and sell any time It's a principal-only business, unlike stocks, where brokers make commissions on buying and selling. Forex firm assume the risk by being a party to the trade and make their money through bid-ask spread, the amount where the ask price exceeds the bid. Because of the sheer volume of trades, that can translate into a lot of money.
How to Trade Forex?
Trading hours vary depending on currency but you can do 24 hour trades between 5pm EST on Sunday to 4pm EST on Friday. If you're going to become a trader, you're going to need a good, easy to use, professional trading platform that's provided by our broker to help you manage your account and trade through their system. There are many techniques but basically you'll need to do forex research and analysis to understand the current climates in each country and use the system to buy and sell. It's a risky venture but as you grow with experience, you can improve and become better.
Because of the size of the Forex market, not even banks have the ability to corner the market much less control it. That's why it's a great place for smaller investors to potentially make a lot of money.
Author: Anton Q Puamanuka