subject: Forex Trading: Take Advantage Of A Floating World [print this page] Forex Trading: Take Advantage Of A Floating World
Forex trading as a profession has exploded in the past. The sheer volumes of these markets make some think that there is speculative nature to it. However, even though there is a speculative nature it is required by almost everyone today. Whether we realize it or not, each one of us is invested, in one way or another. This article explains why and what to do about it.
Why Not Investing Is Risky
In 1971, President Nixon took the world off the gold standard. Currencies are nothing more than a stock in the government/central bank of a nation. What we are holding is thus stocks. To add to this, these stocks often lose value. This means that if you deposit $100 in the bank account, the interest will be less than purchasing power lost due to inflation. Hence, not actively investing but passively leaving your fortune in the stock of an entity which repeatedly spends more than it has and prints more stock to make up for it is mistake. Currencies are only as valuable as they are scarce. Currency trading gives you the option to switch to the most profitable currencies, so you need not necessarily stay with your government if they are careless with their spending.
The Definition Of Risk
Risk, in finance, means the uncertainty about the outcome of an event. But we all know that deficit spending ultimately leads to inflation. So it makes sense for us to invest our money with the countries, which have least deficit spending, to protect its value. Holding on to a useless asset class on the blind belief that careless politicians will take care of the issues is riskier. Ignorance is risky, but fortunately education can counter it and help you make better decisions. FX education is relatively easy to understand.
The modern financial system is such that a lifetime of savings can be wiped off in the blink of an eye. If the government prints money faster than you can earn it, this means that all your past savings are worth less and less each passing year. Although the number of dollars in your account might look the same, they will buy you less. Forex trading gives you an opportunity to protect your savings.
How Forex Is The Best Way To Hedge Risk
There are various asset classes where you can invest. But stocks, bonds, oil, gold are all under the influence of many other factors. Forex, on the other hand, is directly related to deficit spending and central bank operations. So all you need to look at is the number of notes the government is printing. The country that prints least wins. The movements appear erratic because, this is often in anticipation of the event. So speculators bet on the fact about how much deficit spending a country does relative to others.
It is in the best interest of every investor to understand this market as it also has a huge bearing on the stock markets as we now have global capital where money flows in and out of nations in no time. Forex trading is your best hedge against this risk.
