What is Forex Trading and Investing and Why All Traders Need to Know

What is forex trading and currency investing, and how market speculators and hedgers engage in both methods to profit from the global financial markets.

What is Forex Trading and How Traders See it

Forex trading is a broad and inclusive term which includes many different methods and forex strategies for trading the underlying currency pairs that each strategy, or each specific trader focused on. The variety of these techniques and methods is very large, as the global forex converter mechanism offers non stop trading from late Sunday through to late Friday hours. And this includes many different pairs of currencies. So ultimately it offers traders a lot of choice and flexibility, so as to enable them to make money. Most traders by definition of the word trade, are short term investors. We can think of trading as short term investing, and all investing and trading can either be for speculative, directional objectives on market price, or for hedging purposes where the objective is to limit the risk on another, opposite investment. The question of what is forex trading used for in today’s world, goes far beyond simple investing and trading. It is used largely as a way to make profits in the speculative way, but also just as largely in a hedging way, by where businesses, of large and medium size, reduce the risk that the open market imposes on them. Hedging is about limiting risk, and ultimately increasing profitability in those businesses.

The global foreign exchange market bridges distant continents and countries together, making the trade world smaller and more efficient. Ultimately, it’s all for the better.

What is Investing and Long Term Hedging All about?

Traders and investors often engage in long term strategies, such as the Carry trade, where the objective is to profit from price movement as well as interest rate differentials on various currencies. One has to exercise extreme caution and use a forex calculator when planning such investments. The smallest miscalculation can sabotage the entire strategy, resulting in very poor profitability, or even a loss. You may ask what is forex trading used for, in these longer term strategies where mostly macro economic factors such as interest rates play the most part. But the two are strongly related. In order for one to plan long term currency investments right, such as the Carry trade type of investments, they have to also be a knowledgeable forex trader. By being both a trader and an investor, one is able to hedge short term adversity and volatility, while maintaining long term objectives. The big money is usually made in the long run. Some investment banks do make money trading the forex market on a day to day basis, but their techniques are more about chasing price momentum than having a real speculative trading plan. By contrast, the longer term strategies, are much more complicated and require meticulous planning, but once in place, the trader or investor only need to check the market few times a week and not spend the whole day at a computer screen.