A Beginners Guide to Forex Investing

At CWS Capital, we want to arm you with the knowledge to grow your wealth and build for the future.

forex-investing

You work hard for your money, consequently, your money should work hard for you. But unfortunately, that’s not going to happen if you leave all of your cash sitting in a bank earning a minimal interest rate. Don’t get us wrong, having some cash in the bank is necessary for living expenses and emergencies. But above that, you should look for ways to diversify.

At CWS Capital, we want to arm you with the knowledge to grow your wealth and build for the future. As such, you may have heard of the foreign exchange market or Forex investing with a $6.6 trillion daily trading volume. It is the biggest financial market in the world.

But is it a good investment option to add to your portfolio? And should you take the leap? Keep reading to find out.

What is Forex Investing?

Forex is used as a combination phrase, conjoining the words “foreign” and “exchange” together. Also referred to as FX, the forex market is where international currencies are traded and exchanged against one another. You’re trading a certain currency for another one. Moreover, currencies are exchanged in pairs. For example, the U.S. and Canadian dollars, or even the U.S. dollar and the euro.

The exchange of currency in this manner is not a novel idea. Some people speculate that trading of this nature – albeit on a much smaller scale – has been around since the inception of money itself. However, the foreign exchange market that we invest in today can be traced back to the 1970s, prices are largely affected by the economic actions of a country’s government or central bank.

How Do You Trade Forex?

Forex is speculating on the price fluctuations of currency. Traders purchase currencies they assume will rise in comparison with other currencies, or sell currencies they believe will fall in value.
Forex trades take place in three ways:

  • The spot market: Currency pairs are traded with the exchange rate based on the supply and demand of the respective currencies.
  • The futures market: involves contracts to buy or sell a certain quantity of currencies at a specified price on a future date.
  • The forward market: Parties sign a contract that sets the price of a currency for future delivery. A forward contract is a private and customizable agreement while a futures contract is standard and traded on an exchange.

To begin forex trading, you have to locate a reliable broker. Someone who is registered with the IIROC (Investment Industry Regulatory Organization of Canada).

As mentioned earlier, currencies are exchanged in pairs – and in a market that functions nearly 24/5, exhibiting the trading times of Asia, Europe as well as the United States – exchanging in pairs entails you can’t just purchase a currency, you must purchase one as well as sell another.

Currencies are exchanged in various sizes. These are commonly referred to as lots which are the standard unit of measure when buying or selling currency pairs. The change in a currency value is measured in PIPs, which is a very small percentage of a currency’s value.

With the ability to invest your money in small amounts, a new trader is not likely to lose a substantial amount of money. However, it can get a little risky when a fresh-faced investor chooses to place more money in the market prior to doing their homework.

They might decide to invest in forex and use leverage to trade large positions—but if things don’t pan out, the money they initially deposited is quickly gone. And now they’re really in hot water.

Can You Get Rich With Forex Trading?

Large hedge funds and banks with groups of people committed to this kind of trading may make money from currency exchange. However, the everyday person, more than likely – won’t. Even massive funds can make blunders when forex trading.

And that’s due to two things. First would be the interest rate parity, which explains how the differing interest rates between countries will get washed away by the corresponding motion of their currencies over the span of a long enough time period.

The second reason is because of the reliance placed on past performance as a judge of future performance. It’s not wise to believe that just because gains were made before that it somehow becomes a definitive indicator they’ll be made again. Currencies are volatile and affected by many variables such as commodity prices, GDP, interest rates, as well as the quantity of cash flow moving between countries.

There are a near limitless amount of variables that can impact the movement of a currency. Moreover, it’s basically impossible to determine those factors in a way that allows you to confidently predict the direction of any one currency.

With that being the case – unless money’s no object for you, or you possess the experience and have the time – forex trading is quite risky.

Conclusion

While forex trading may not be the best option for the average person, that doesn’t mean you’re out of luck. In fact, there are many alternatives available for you to take control of your money. And if you’re interested in learning about what they are and how you can benefit, be sure to get in contact with us today.

CWS Capital has been helping people just like you since 2013. And with nearly a decade of experience serving Canadians looking to expand their portfolio, you can rest assured you’re in good hands.

We operate with transparency and integrity, and are BBB (Better Business Bureau) accredited; further solidifying your investments will be well protected when you choose us.

Check out our award and recent article in the Canadian Business Awards magazine:

Best Alternative Investment Management – Western Canada