In this video, we\u2019ll provide you with a broad overview of the foreign exchange market, as well as who may be participating in it and for what reason.<\/p>\n
For example:<\/p>\n
Why would an investor trade U.S. dollars for Swiss francs, and how would you assess those influences that move one currency \u2013 either in isolation \u2013 or relative to that of another nation? <\/em><\/strong><\/p>\n In fact, it\u2019s that relative movement that often makes it more challenging for some investors to grasp what currency trading is all about.<\/p>\n To provide you with a simple picture of this market, let\u2019s take a look at how investing in foreign currencies can compare with stocks and other assets.<\/p>\n When you purchase a stock, you exchange a certain number of dollars for a certain number of shares \u2013 determined by the share price. And you\u2019re making this transaction with the hope that these shares will outperform that cash, and of course those shares may also pay a dividend.<\/p>\n For hard assets, such as commodities, your investment is either based on your superior specialist knowledge about energy or agricultural products or your aversion to fiat currency.<\/p>\n In these cases, you would rather opt to exchange your dollars for an amount of crude oil or corn, for instance, hoping that such physical assets will maintain or increase in value as an alternative to the dollar over time.<\/p>\n But whether you\u2019re investing in a stock or commodity, the concept is the same, you\u2019re typically going to give up a unit of dollars in exchange for something else.<\/p>\n As an investor of foreign exchange, what you surrender is one nation\u2019s currency for another \u2013 and you do so at an agreed upon exchange rate determined by many investors acting in the currency market.<\/p>\n For instance:<\/strong><\/p>\n Let\u2019s say you give up a certain number of U.S. dollars in exchange for a sum of British pounds, or a number of Japanese yen in return for some amount of Swiss francs. <\/em><\/strong><\/p>\n But why would you do this?<\/strong><\/p>\n Well, here are a few reasons:<\/p>\n Just as you would hope that the stock or physical assets you bought will outperform your cash, as a foreign currency investor, you would expect the value of the currency unit you purchase to increase relative to the one sold.<\/p>\n Buyers and sellers forming such expectations are either speculators or Portfolio Managers. They can be either actively trading many times during the day or once or twice per year.<\/p>\n But however frequently they decide to participate in the market, they will typically have an obligation in the bought unit \u2013 such as a payment due for goods and services.<\/p>\n Examples of these may include:<\/p>\n Foreign currency market participants may also intend to acquire an asset priced in the purchased currency, such as:<\/p>\n Average daily turnover in the foreign exchange market runs at around $5 trillion. That makes forex trading far greater in face value than daily averages for equities or bonds.<\/p>\n So, what\u2019s the big attraction of dollars, pounds and yen?<\/strong><\/p>\n Basically, currency trading has proven both liquid and volatile, attracting many investors.<\/p>\n Because of many competing views, currencies have lured many speculators, as well as corporate treasurers who need to minimize fluctuations, manage cash flows, hedge profits and project trends.<\/p>\n","protected":false},"excerpt":{"rendered":" Understand how to trade shares of overseas-listed companies in foreign currencies, become aware of settlement concerns and know how exchange rate fluctuations can affect profits and losses when using a cash account or borrowing on margin.<\/p>\n","protected":false},"author":899,"featured_media":8800,"parent":0,"comment_status":"open","ping_status":"closed","template":"","meta":{"_acf_changed":false,"footnotes":""},"contributors-categories":[149],"traders-academy":[100,103,105],"class_list":{"0":"post-8793","1":"trading-lessons","2":"type-trading-lessons","3":"status-publish","4":"has-post-thumbnail","6":"contributors-categories-interactive-brokers","7":"traders-academy-beginner-trading","8":"traders-academy-level","9":"traders-academy-trading-lesson"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"\n\n
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