Investing in currencies is more popular than ever. When you start investing in currencies, you use one currency to buy another currency. When the currency you buy then increases in value, you earn money. But how does investment in currencies actually work and how can you make money trading in currencies?
Why is trading in currencies so popular?
- You pay no commissions: Therefore you can invest profitably with little money.
- The currency market is the largest market on earth: this makes it very stable.
- The currency market often moves according to fixed patterns and is relatively predictable.
- You can also make money when exchange rates are falling by going short.
- With orders you can easily manage your strategy & maximize your profit.
How can you trade in currencies?
Trading in currencies is pretty easy. For this you only need a free account with a broker of your choice. With a broker you can easily buy and sell the currencies and, thanks to the possibility to trade with a demo account or a small deposit, you can even try it without any risk.
How does trading in currencies work?
A currency like the euro always changes in value in comparison to another currecy. When trading in currency, it is therefore about relative exchange rates. An example of an exchange rate is the value of the pound measured in dollars, this combination is called a currency pair and we write this as GBP/USD.
It is possible to go both long and short. When you go long, you predict that the pound will rise against the dollar while a short position implies that the pound will fall against the dollar. When you become good at analyzing graphs, you’ll recognize the different patterns and you can earn money by trading the currencies.
Success with currencies
The exchange rates of currencies are influenced by numerous factors: for example, among other things, the policy of the central bank, the balance of payments, the economic situation… The rate is also continuously affected on a smaller scale: when Panasonic receives its profits from America in dollars, it probably exchanges (most of) these dollars for Japanese Yen. Because American dollars are sold and the Japanese Yen is purchased, the price of the yen rises against the dollar.
Obviously, as a small party you hardly have any influence on the exchange rate: as a result, there is a certain degree of stability in the foreign exchange market. The price moves regularly in predictable patterns where a clear upward or downward trend can be recognized. It also happens quite often that the price moves mainly between two levels.
Exchange rates often move in predictable patterns for a longer period of time
It is virtually impossible to correctly interpret all news on the foreign exchange market. However, it is possible to recognize the general movements. Once you can recognize these movements, you can take positions with higher certainty and you are more likely to win than to lose; if this is the case, you can earn money trading in currencies.