Lately I’ve been interested in international trades and how someone like myself could get involved. I’ll be honest; there are a lot of complex concepts surrounding the world of the fx trading (FX). Some things I’m really trying to wrap my head around STILL, but it’s fascinating and I wanted to take some time out to share what I’ve learned so far.
To begin, forex (short for foreign exchange) is the exchange of currencies from different countries. Because of the type of risk involved with currency fluctuation, forex trading is considered speculative. What I didn’t realize was this form of trading is NOT regulated as with exchange trades. I remember learning about clearing houses in my investment classes and apparently there are no such things in forex trading either. For those who don’t know, a clearing house is basically a bank in the trade world that acts as a middle man to ensure everyone plays fair. It layman’s terms, it ensures everyone has enough money in their account to continue to play in the game of trade. With little regulation, I would think this market would be chaotic and a mess, but apparently not! Doing some research I see this form of self-regulation works for those involved.
Currencies are traded as a pair against each other. For instances, 1 of the major types of currencies traded on the forex is the USD and Euro. Say if you purchased 500 euros today. That would cost you approximately $645 USD (.7742 euros = 1 USD). Now imagine after 1 year the value of the USD increased against the euro to .8150 euros to 1 USD. That would mean in 1 year’s time you would earn $146! Nice gain, but there is great potential for serious loss as well. As always I would highly recommend you consult a competent financial professional. Never put money in you can’t afford to lose!