Before you jump down to understanding investment in Forex you must first understand what Forex is and how it works.
Forex is short for foreign exchange, it is a trade where currencies of different countries are traded i.e. bought and sold and at times exchanged for the purpose of trade and commerce. Due to inter-country trade it is important for business entities to have ready exchangeable currency to carry out the trade.
Sure that you know, currencies are listed on Forex against one another like US$ against ?, and so on. The difference in currency exchange is what is important to understand.
Currencies like $, £and € are costlier than ? or Yen. The difference in value between a higher currency and a lower currency is what brings you the gains on investing in Forex.What you need to understand is the simple job of trading one currency against another in anticipation of making a profit.
I will give you an example to make it clear.
Say, you live in India and Indian rupee is cheaper than US dollar. Then if you swing the market forces, studying market trend you buy one US $. So today it cost you say ?65.
On anticipating that in future dollar will become stronger than ?. You hold your investment for some time. When the rates of $to ? rises, say 1$=70?, then you sell your one dollar to make a profit of ?5 on your investment.
This is a very simple example. Definitely Forex market is more complex and there are many factors that you have to consider. Economic condition, foreign trade policies, foreign investment policies and collateral ties between countries are some major factors that affect the Forex market directly. Contrary to this, prices of crude oil, gold, bullions are factors that affect the Forex market indirectly.
Kinds of Forex trading
There are different methods or say styles of Forex trading.
These are called market conditions in which you trade. Although Forex is kind of speculation but there are times when you have to take calculated risk. When you are in business with other countries, regular currency exchange is a routine, but still there is ambiguity in the rates of currency.
This is where hedging comes into play. Under hedge an investment bank will set a fix rate for a currency on a particular date in future. If on that date the currency in question is at a lower price than the fixed price of the bank. The bank will have a choice either to sell to the investor on the lower rate or not to sell. Buy it the value of currency rises higher than the fixed rate then the bank will be under compulsion to sell the currency at that fixed rate.
It is using this anticipation of rise in prices that the investors usually take the hedges no option to gain.
Forex is very deep and complex; in order to understand every aspect you have to research a lot and study it. But if you do not have so much of time, the easier part of doing this is hiring a trading agent. After you hire expert traders all you need to do is invest the amount, rest they will do and you will make profits for a small service charge that they take.