Is Forex an Option?

As I mentioned recently, now that we have paid off our consumer and student loan debt, I plan to put the bulk of our new savings into a portfolio with an asset allocation that suits our long-term goals. I am pretty risk-averse and more sensitive to losing money than making it, so I will probably lean to a bit on the conservative side. I also mentioned that I am likely to keep another small pot of money for fun – speculative trading in stocks and other commodities. Forex trading could be an option for that money.

 

What is Forex?

Basically, the term “forex” means “foreign exchange market” or FX or currency market. This is a global marketplace where people buy and sell currency. It is a decentralized system that allows companies who operate across borders to convert money into the currency they need, maybe their “home” currency.

In addition to assisting with trade and investing, the Forex market allows people like you and me to speculate by trading currency pairs – basically a spread bet between two currencies like the US Dollar and the Euro – and guessing whether they will rise or fall against each other.

 

Why is Forex an Intriguing Option?

Trading requires research and knowledge. In my opinion, Forex trading is more interesting than stocks, and the technical analysis that you do can give you a better understanding of how the global economy works.

When trading individual stocks, you must become very knowledgeable with how one company operates, what their future is, current challenges, etc. This is not even counting the things you don’t know, and may never know, about the company.

Generally information about a publicly traded company is coming mainly from people who have a stake in making money – salesmen, analysts, rating agencies, or the mainstream media. With foreign currency, you can get information about your “company” from a wide variety of sources that aren’t concerned with whether you are trying to profit from trading.

Forex also lends itself to day-trading, or getting in and out of the market within one trading day (be careful, as Forex operates 24/7). A patient and dispassionate investor could leverage a large-sized starting amount, say $10,000 or $20,000, and using small, predetermined increases to make a small amount of money. If you are able to hold yourself to small goals, say $50 per day in profit after taxes (or $50 in losses), you can train yourself to overcome emotion (greed), and develop an actual trading system. These are skills that can be used in any type of high-frequency trading.

 

Forex Technical Analysis

I’ve been doing as much research as I can on investing and trading, and came across this helpful video series and technical analysis guide at Alpari. This video covers an intro to Forex technical analysis, including triangles, wedges, reversals, “head and shoulder” patterns, and other trends to look out for in the area of “continuation.”

I really like “whiteboard” videos, makes me feel like I’m back in college.

 

As I said before, Forex trading can be an interesting way to stay informed on global currency markets, and as a traveler, this is more interesting and useful to me than staying up to date on the latest nerd running the latest thing company.

Yes I realize there is a lot of risk, but that’s the point. As long as you don’t trade on margin or trade all your nest egg, and stick to a system, it can be an option.

 

Related Posts Plugin for WordPress, Blogger...

8 thoughts on “Is Forex an Option?

  1. I definitely think people trade best what they know. I will admit: I know zippo about the Forex, so I have a HUGE learning curve in this area. For a clean slate person who likes learning about how currencies trade? Jump in…but watch out for the sharks!

  2. Great points about how forex is based on information that is much more readily available. When thinking about it that way, it does sound like a much better route for a day trader. I personally find it more interesting than following companies, but I think I’d still be leaning towards the stock market instead.

  3. I’ll be honest I don’t know much about forex, but you did you say you are on the conservative side. Is forex more conservative than the US stock market? Why not just buy a 500 index fund and let it do work?

    • Hi Harry. As I mentioned, the bulk of my money would be going into a conservative portfolio. Forex or individual stocks would be in a separate account, a small percent, maybe 5% or less. Thanks for stopping by!

      • Haha ok gotcha! That makes way more sense. I look to some alternative investments like lending club and individual stocks with <10% of my portfolio, keeps me honest! 🙂

  4. I think forex is incredibly interesting, but it is incredibly risky if you don’t know what you are doing. When investing in a company, you are making your decision on a handful of factors, but primarily the ability of the business to generate a profit.

    In forex, you are making decisions based on a wide range of economic and political factors. There are so many potential impacts that it is very difficult to take everything into account when making an investment decision.

  5. The idea of getting into stocks scares me because I don’t feel like I understand them well enough at all. Thanks for sharing this video, maybe little by little I can figure this stuff out!

  6. I’ve done a little bit of Forex trading last year when I was doing the CNBC challenge. I have to say that it is not easy by any means. Like you said it is open 24/7 and you have to deal with major news from all around the world that can change the direction of your trade in an instant. In order to make a decent return you have to use a ton of money or have crazy leverage. I definitely recommend taking some charting classes as that is something you have to be knowledgeable in. Stockcharts.com is a site I used to help learn charts and when I traded forex for real-time streaming charts I used http://www.freestockcharts.com/ Good luck if you do decide to dabble in Forex.

Comments are closed.