Photo by stevepb, CC0 1.0
So, you’ve decided to take your first steps into trading on the forex market, or the foreign exchange market. This is definitely a big step and can seem like a scary or uncertain one, especially for those of you who have never dealt with trading currencies before.
As the world’s largest financial market, forex is something you don’t want to go into without all the proper research beforehand to help you become successful. And that’s why you’re doing this right?
And because it can be a bit stressful while you’re first starting out in forex trading, the following article will go through the ways you can invest and trade in the forex market. Afterwards, you can give your forex skills a try with a forex demo account and start your trading journey.
Here is where most of the currency trading in the world happens and is the ideal spot to start on your forex trading journey. The forex market is the round-the-clock cash market where traders can buy and sell pairs of currencies. Everything from banks to hedge funds makes up the forex market, so it’s definitely a crowded arena.
It’s estimated that trillions of dollars’ worth of trading happens on the forex market every single day, so be ready for lots of trading. But unlike stock exchanges like the New York Stock Exchange or NASDAQ, the forex market isn’t made up of one singular market. Rather it’s made up of a wide computerized web of brokers and traders.
- Foreign Currency Futures
Another way to get going in forex trading is to work with foreign currency futures. In a nutshell, currency futures are a contract between two parties that specifies when a specific currency can be bought or sold in the future and for how much it can be bought and sold for.
Buying and selling foreign currency futures is a way to take away some of the risk involved in forex trading, as these futures are bound by contract to be bought or sold at a specific rate. Check out the Chicago Mercantile Exchange if you want to get into foreign currency futures. It’s the second largest exchange for futures in the world and the biggest in the US.
- Foreign Currency Options
If you don’t want to be held to any obligation or contract through a foreign currency future, there is another option that is less binding through foreign currency options. With currency options, foreign currency buyers have the right to buy or sell at a set exchange rate before or on a date agreed to by both parties. In that sense, you’re not obligated to buy or sell on one date in the future.
However, a premium will have to be paid to the seller for this kind of exchange. This may be the best option for you if you are looking for something less binding than foreign currency futures.
- ETFs and ETNs
Standing for Exchange-Traded Funds and Exchange-Traded Notes, ETFs and ETNs are another great option for your forex trading. ETFs work on the same level of index funds and are the same as stock on a normal stock exchange. ETNs are very similar to ETFs and are also traded on normal stock exchanges like common stock.
CDs stands for Certificates of Deposit, not the disks you used to play your favorite songs from. These are savings certificates with fixed expiration dates and interest rates, so the funds can’t be access until the expiration date is reached. The good thing about these notes is that you will be able to earn interest at foreign rates. Like normal savings, these are insured up to $250,000 through the FDIC, so your funds are safe and sound.
- Foreign Bond Funds
Foreign bond funds are the last way you can invest and trade in the forex market. These funds make investments in foreign government bonds. After some period of time, these funds can be converted back to the original currency of your country, as they are invested in a foreign currency and earning interest based on that country’s rate.
So, there you have it. All of the many ways you can take part in the big, wide world of forex trading. Whichever route or routes you take, make sure you do plenty of research and training before you take the dive into trading.