The Most Important Trends in the U. Our network of forex market basics video financial advisors field questions from our community.
Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. A celebration of the 100 most influential advisors and their contributions to critical conversations on finance. The latest markets news, real time quotes, financials and more. In fact, the forex market is the quiet giant of finance, dwarfing all other capital markets in its world. Despite this market’s overwhelming size, when it comes to trading currencies, the concepts are simple. Let’s take a look at some of the basic concepts that all forex investors need to understand.
Eight Majors Unlike the stock market, where investors have thousands of stocks to choose from, in the currency market you only need to follow eight major economies and then determine which will provide the best undervalued or overvalued opportunities. These economies have the largest and most sophisticated financial markets in the world. By strictly focusing on these eight countries, we can take advantage of earning interest income on the most creditworthy and liquid instruments in the financial markets. Economic data is released from these countries on an almost daily basis, allowing investors to stay on top of the game when it comes to assessing the health of each country and its economy. Yield and Return When it comes to trading currencies, the key to remember is that yield drives return. All currencies are quoted in pairs, because each currency is valued in relation to another.
USD pair is quoted as 1. In every foreign exchange transaction, you are simultaneously buying one currency and selling another. In effect, you are using the proceeds from the currency you sold to purchase the currency you are buying. Furthermore, every currency in the world comes attached with an interest rate set by the central bank of that currency’s country. Clearly, leverage should be used judiciously, but even with relatively conservative 10:1 leverage, the 7. The use of leverage basically exacerbates any sort of market movements.
As easily as it increases profits, it can just as quickly cause large losses. However, these losses can be capped through the use of stops. Carry Trades Currency values never remain stationary, and it is this dynamic that gave birth to one of the most popular trading strategies of all time, the carry trade. There have been plenty of opportunities for big profits in the past. Let’s take a look at some historical examples.