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.