World currencies are traded 24 hours a day 5 days a week in Foreign Exchange Market (FOREX). It is the largest and most liquid market in the world. Some use this market as a mechanism for changing one currency to another, such as multinational business companies around the world. For more the market is also occupied by the traders who bet on movements of the currencies relative to each other.
The forex market operates between individuals represented by brokers, between brokers and banks, and between banks. With the widespread availability of electronic trading networks, trading currencies is now more accessible than ever. The foreign exchange market, or forex, is notoriously the domain of commercial and investment banks, not to mention hedge funds and massive international corporations.
You have to open an account with a forex broker and trade currencies from around the world. Some differences how forex market operates compared to the U.S. stock exchange:
-Currencies are traded in pairs. One betting currency pair, one will go up and the other will go down.
- No regulated currency exchange and no central clearing house for trades.
- No uptick rule for taking short positions.
- No upper limit on the size of the positions
- Currency dealers generally make money on the bid-ask spread, rather than charging commissions.
Sheer number of currencies traded serves to ensure an extreme level of day-to-day volatility. There will always be currencies that are moving rapidly up or down, offering opportunities for profit (and commensurate risk) to astute traders. Yet, like the equity markets, forex offers plenty of instruments to mitigate risk and allows the individual to profit in both rising and falling markets. Forex also allows highly leveraged trading with low margin requirements relative to its equity counterparts.
Buying and selling currencies
Buying and selling on forex market, must note that the currencies are always priced in pairs. All the trades’ results are based in simultaneous purchase of the one currency and sale of another. While trading on forex market, you would execute a trade only at a time when you expect the currencies you are buying to increase in value relative to the one you are selling.
Foreign Bond Funds
There are mutual funds that invest in foreign government bonds, which earn interest denominated in the foreign currency. If the foreign currency goes up in value relative to your local currency, the earned interest increases when converted back to local currency.
Many stockholders indirectly participate in the foreign currency markets through their ownership in companies that do significant business in foreign countries.
Like all investments, investing in the currencies involves risk, especially during the volatile economic times. Advantage of the currency market, theoretically, a level of playing field. Currencies are impacted by the world events around the clock, the internet and wireless communications can provide almost instant access even to the small investors.