Momay's Blog

What is currency trading? This is perhaps one of the most common heard questions, in the light of the recent increase in popularity of foreign exchange trade as a mode of investment. Fuelled by the growth of the internet as a means of telecommunication, the foreign exchange market is the largest in the world, with an estimated daily trade turnover in excess of $3.2 trillion. In any case, what is currency trading all about in the first place? Why the hype? Let this article tell you all about it.

- Buying and Selling Currencies

At the most basic level, currency trading or the trade in foreign exchange, is centered upon the buying and selling of currencies of different countries in the foreign exchange markets. When you participate in trade in the foreign exchange markets, you are in essence using the currency of a particular country to purchase currency belonging to another country.

For instance, when you purchase the Euro, you would have to make your payment using another currency, for example, the American dollar. Should the value of the Euro increase relative to the American dollar after your purchase, you would have earned a profit, as for the same amount of Euros; you would now be able to exchange a greater quantity of the American dollar.

- Anytime, Anywhere

Unlike other forms of investments such as stocks, the foreign exchange market in which currency trading is carried out, is organized as an over-the-counter market. This means that much of the trading takes place via advanced telecommunication networks, linking buyers from different parts of the world to sellers. As a result, trade can take place at any location around the world round the clock, five days a week.

Yet, to participate in trade, you would need to set up a trading account. This is often done via the internet. A foreign exchange account can often be set up over the internet with relative ease. Simply run a search for “foreign exchange brokers” on search engines such as Google and Yahoo, and you would be presented with an endless list of online foreign exchange brokers.

- Choosing an Online Broker

Choose the one that best suits you, and you are now ready to begin trading in foreign exchange. However, it is important that your online broker is someone registered with the CFTC (Commodity Futures Trading Commission) as a FCM (Futures Commission Merchant). This is to prevent yourself from falling prey to online trading scams that could disappear without a trace with your hard earned savings.

Lastly, it is important to understand that success in foreign exchange trading is by no means a game of luck. Treating the foreign exchange market as a Monte Carlo casino is often the surefire way for failure. It is important for you to increase your financial literacy by reading voraciously on the various investment strategies used by those who have achieved success. Critical analysis and research is above all, necessary before making each trade. Ultimately, you would need these in order for you to make wise investment decisions in order to achieve the returns you desire.

Once upon a time, a prince was looking for a real princess. He traveled about the world searching for a real princess but returned home disappointed. One evening, a young woman claiming to be a real princess seeks shelter from a storm in the prince's castle. The prince's mother decides to test the validity of her claim by placing a single pea on a bedstead and piling twenty mattresses and twenty feather beds atop it. There, the young woman spends the night.

In the morning they asked her how she slept.

'Oh terribly bad!' she said. 'I have hardly closed my eyes the whole night! Heaven knows what was in the bed. I seemed to be lying upon some hard thing, and my whole body is black and blue this morning. It is terrible!'

There is a modern-day story that is very, very similar to the “Princess and the Pea.”

Once upon a time there was a prince who was searching for an investment adviser to help him preserve, protect, and possibly grow his fortune. He hoped that the money would help him in his old age and then after he and his wife were gone, he wanted to make sure that he could also provide for his children.

He searched high, and he searched low, and after a long while found someone who would surely be the right advisor.

Over the next few years, the financial advisor did all of the things that the prince required of him. He diversified the Prince’s portfolio among cash, bonds, and stocks. He even invested some of the Prince’s money in foreign lands.

The prince’s fortune grew at a relatively stable rate. Best of all, the investment duties required very little of the Prince’s time. Overall, the Prince was quite pleased with his choice of adviser.

Every so often the Prince would summon his adviser to the palace in order to complain that part of his portfolio wasn’t growing as fast as the rest. He would also complain in strong voice and at great length when any one of his investments declined in value.

His trusted advisor, over and over again, would try to explain that he wasn’t perfect and never would be. Due to the nature of the world, it is only during very rare times had everything is doing well or that everything is doing poorly. Most of the time, some things will be doing well while others are not.

The adviser tried to explain that in the Prince’s forest, not every tree grew at the same rate. Some trees even died due to circumstances such as drought, fire, and for and various other reasons. On balance, though, the forest continued to grow over many, many years. The advisor asked the Prince if under those circumstances, did he also summon his head forester in order to complain about those few trees?

The Prince, in all his Princely wisdom finally understood that it was more important for him to see his entire forest rather than to look at each one of his trees.

The moral of this story: Stop whining. You ain’t no princess. Don’t be such a pain in the ass.