Forex trading can be a very fast paced “game.” Exchanges are done electronically and are instantaneous. The trade is done generally between two entities, as discussed in a previous article, and generally is done through an electronic brokerage firm. An attractive feature of the Forex is that there are no commissions involved. There are processing fees, but no commissions to further eat into any profits you may realize. This feature is especially attractive in this sort of market, where multiple transactions may take place in a relatively short period of time and traders could not operate as freely if there was a percentage involved in each transaction.
Most of the trades done through the Forex is done as pure speculation, with the trader on each side of a transaction believing they are on the upper half of the deal. A smaller percentage of the transactions are done by companies and governments who have done deals in other countries and they wish to convert the foreign currency into their own.
Among the many things that bring traders into the Forex is the aspect of constant trade opportunities. Because the exchange does not close during the week and the fact that currency values are always fluctuating to some extent, there are always deals to be had, especially for those who can read between the lines and anticipate reactions to occurring events.
Election times in any country, especially major powers, are always a time of intense speculation. Having an inside track on campaign strategies, for example, might give a trader insight on the direction the election might take and that might lead him or her to buy or sell to counter the effect that they see coming. If a more conservative government is coming into power, and you believe you know the direction the interest rates are going, you may have an inside track.
Interest rates impact trading of any currency. For example, if you know the interest rate in a foreign country is going to increase, you can invest in some of their currency in order to invest and gain strictly on the interest you will earn. If your home currency also weakens while you are earning a higher interest, you will gain in two ways, one with the interest on your investment, and two, when you exchange the currency back into your ‘native currency’.
That is not to say you need to stick with your ‘native currency.’ If you are from the United States and you exchange Dollars for Euros, you are later free to exchange the Euros for Pesos, Yuan, Canadian Dollars or any other currency you see as being the best exchange to make you money. It is a world-wide exchange and the best traders are always looking into new areas.
It would probably be in your best interest to get quite familiar with a few currencies before getting too spread out. Even more than with many more well known investment vehicles, you really need to look at the big picture when trading in the Forex. It is a big world, and you need to be aware that dominos falling in one country often have an impact in many others.