If you are thinking of investing in foreign currency, you should do your due diligence before you start putting real money on the line. There are a lot of forex brokers out there, but the way that they operate can vary massively depending on where the company is based. If you live in Australia, it is probably a good idea to choose an Australian broker, purely for regulatory purposes. Indeed, you may not even be able to open accounts with other, foreign brokers.
Is Investing In Foreign Currency A Safe Business?
The truth is, investing in foreign currency is profitable, but it is not a guarantee of returns. The forex market is a volatile one, and even the traditional 'safe haven' currencies have proven volatile lately. For this reason, you should try trading with a demo account so that you can get a feel for how much time you would need to invest, and how much the markets can move.
There are two main things that traders use to determine what they are going to invest in. They are fundamentals and technicals. The concept of forex fundamental analysis means looking at news announcements and using those to decide which way the markets might move. Meanwhile, technical analysis means looking at trendlines and using mathematical formulae to figure out what you should invest in and when.
Fundamental analysis is based on real events, but because you are watching the news you are always going to be one step behind, and people who have access to faster newswires than you might get the jump on you for important trades.
Technical analysis in investing in foreign currency looks purely at the numbers, but is based on the idea that there are support levels at key market lows, and resistance levels at certain high points. The history of the markets bears out this theory, but if there are major fundamentals that would cause the markets to crash or soar, then obviously those will make the market break the historic trends.
The Tools Trades Use
The best traders use both tools when they have them at their disposal, and also set up their trading platforms so that they will automatically sell their chosen currency pair if losses reach a certain level, or indeed once gains reach a certain point. They do not allow themselves to get emotionally invested in a trade, or hold on to a currency so long out of greed that their fortunes reverse and the currency starts to fall again.
Investing in foreign currency can be profitable, but there is an element of luck to it as well as skill. No-one can predict the future, and anyone promising guaranteed returns from foreign currency is being misleading at best. Make sure that you only ever trade currency with money that you can afford to lose, and do not ever allow yourself to get so caught up in trades that you put all of your bankroll on one currency pair. This is a recipe for disaster if you ever make the wrong decision - especially if you are trading with a significant amount of leverage on your account.