How to Implement a Forex Investment

A good forex investment should be implemented in a selective way. By taking into account macroeconomic factors and the state of the national economies involved.

A Good Forex Investment Starts with Original Thinking

When one decides to implement a forex investment in any kind of currency, they inevitably have to analyse both that currency and their own national currency. Investing in foreign currency for anything beyond one month, requires imagination and original thinking. Much of the data can be found on forex charts, while finding other less obvious data requires ignoring the media and public opinion, and even possibly analysts’ opinions. Conventional wisdom for example, would have you believe that if interest rates go up in a specific country, then that country’s national currency must also appreciate over time. But this isn’t always the case, in fact it is perfectly possible for the said currency to depreciate over that period, thereby ruining one’s expectations and investment. The very first thing the investor should do, is look at long term charts, and see how that foreign currency has performed over the years, first against their national currency, and then against various other currencies. Much of what conventional wisdom teaches is right, but is only part of the truth. What really matters is how competitive and attractive a currency is to foreign investors, or how valuable it is to commodity buyers around the world. Economic numbers and interest rate policy are not enough to produce solid, durable price movements. So currencies can still trade in the most unexpected way possible, and investing becomes complicated.

Forex Investment Implementation through CFDs

Many investors who specialize in forex, when considering a forex investment always look at long term momentum and fundamental data. They prefer to invest through CFDs, and look for long term trends. As CFDs are more cost effective, and can even provide linear hedging for covering Carry currency investments. Live forex rates fluctuate up and down every day, and form trends over many days. These trends may reveal the existence of momentum, of false trends, as well as soon to happen trend reversal processes. These moves are fuelled by investors’ expectations of the near future, and not by current economic activity. Conventional wisdom often fails, because it focuses too much on current events. Sure enough higher interest rates will attract Carry investors, but these investors buy that currency long before rates are set higher. And then, what if another currency becomes more attractive, that would be one more reason not to invest in the high interest rate currency any more. All these factors are often ignored by analysts appearing on the media, and the markets end up proving them wrong time after time. That’s why making an investment on their advice is not a good idea. Investors should be original in their approach, and see the markets through the eyes of institutional investors around the world, such as investment banks. The markets are always different, every time, and history does not repeat itself in an exact, predictable pattern.