The two words allure potential investors sooner or later- Foreign exchange. The turnover on a daily basis exceeds equity market by more than ten times or even more. Fast and furious, vast sums of money is won or lost in a matter of few seconds.
Always in pairs, currencies are in pairs. The game of foreign exchange is all based on the rise and fall, while some benefit from the rise and the others from the dip. It may be simple enough to call it a ‘zero sum’ game because unlike equity markets, where a number of stocks can rise at one time, currencies cannot. You need to make a decision if you think that dollar will rise, then against which currency it will? May it be sterling, euro or even yen!!
It is always better to have a stop loss for obvious reasons of fluctuations in the currency market. Most people begin by betting on one of the major currencies like the Euro (EUR); sterling (GBP); the US dollar (USD); the Australian dollar (AUS) or the Swiss franc (CHF).
But, it is also possible that some brokers allow you to place bets on even uncommon currencies like the South American currencies or even other European currencies. Hence, if one has the know-how to take a call on uncommon currencies, they can surely give it a try. However, you must be 100 percent confident of playing in such obscure currencies.
Nothing is stable, not even currencies
If you ask what is responsible for the movement of a currency, the simplest answer is “anything”. These rates are indicators of a country’s robustness. Hence, any and every news that affects an economy may lead to currency movement.
One of the biggest factors is interest rates. Some people buy cheaper currencies and put that amount into expensive ones. One should keep a tab on what may possibly influence central bank’s policy on interest rate. Inflation numbers, unemployment figures as well as GDP numbers all may be considered while making any changes in the policy. Since exchange rates move swiftly, it is imperative that stop losses are put in place, especially in front of your own system.
Post the crisis scenario over the last few years, currency markets have remained divided. Even though fiscal deficits across Europe and US have not abated, GDP growth in G20 has turned positive.
Currency trading has hit a record high of about $4 trillion a day, as both small investors as well as big institutions want to utilize the opportunities in other countries to minimize their risks with the prevailing turmoil. The volatility has only increased with the increase in volumes. In the aftermath of Lehmann Brothers, Dollar has seen tremendous volatility against the Euro. But, numerous experts are of the view that this has resulted in bigger opportunities for emerging-markets currencies.
The option of playing currencies is a thrilling and exciting form of trading. Since the returns are greater, the stakes are also higher. Follow the market trends as well as any developments in the economy and you will have an inkling of a possible fluctuation. This is the probably the simplest way in which one can try and win a fortune through currency trading over time.
Today’s guest post is written by Adam Anderson. He is a financial journalist who loves giving finance tips and advice on his blogs. He specializes in dealing with debt management and payday advances.