The market of forex (foreign exchange) is commonly referred to as a “banker’s game”. Billed as such, the markets in which currencies are traded are among the hugest in the world today. In fact, in 2019, daily traded volumes were touted as some $6 trillion. Currency exchange and trading can be a perfect way to diversify any investor’s portfolio, in case it has landed in a rut of sorts. When international forums are in the doldrums, the currency markets offer a respite as they remain strong for investors to make profits.
Gain a Firm Footing
Now that you have understood the extent of currency exchange, you may be convinced to try your hand at it. You should know a little bit about this kind of investment beforehand, and just as you open a demat account for stock investment, your knowledge about forex processes must be clear. One important aspect to be knowledgeable about, relating to trading in forex, is to know which currencies to trade in and their significance in exchange markets. Essentially, the first factor of forex you should understand is the way that currencies are traded.
Forex means the trading of one currency against another, so trading is done in pairs of currencies. There are key currencies all over the globe, and some of these offer significant advantages when you trade, over other currencies. There may not be a “best” currency that offers investors returns, as currency price fluctuations are common depending on economic and political conditions. However, you will find “solid” currencies that offer stability while trading.
The Great US Dollar
As you now know, while you may have stock investment in the way of direct equity or plans to invest in any upcoming IPO, currency exchange may offer you diverse fund allocation in your portfolio. So which currency should you focus on to get substantially worthy returns? When you venture into currency exchange and trading, you will discover that the US dollar constitutes the native denomination of the most powerful and large economy in the world, the United States of America. Frequently, in the financial arena, it is commonly called the “greenback”.
The central banking entity of the U.S.A. is called the Federal Reserve (the Fed). The Fed has a board of governors and a chairperson that heads it. Most of the focus of the Fed is placed on a branch, the Federal Open Market Committee, the FOMC. This is the body that has an eminent role to play while supervising market operations like trading, and manages financial policies and rates of interest.
As with any other international currency of high standards (like the Euro or the British Pound), the US dollar (USD) is backed by strong economic fundamentals. These include a solid GDP (gross domestic product), plus employment and manufacturing reports. The US dollar is considered a strong trading currency, offering some of the highest returns while trading as it is the benchmark which is involved in trading against any other major international currencies, like the Japanese yen (JPY), the euro (EUR) and the British pound (GBP).
Evolving Markets
The financial markets are evolving markets. As they globally grow, currencies and forex will continue to play their significant roles in daily transactions. Currency exchange is a good way to diversify and broaden any investor’s portfolio scope. You may have had to open a demat account for stock trading, but you do not for currency trading. Hence, if you have already invested in any upcoming IPO or other investment instruments, you can shift your view to trading in currencies, but do your background work first.
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