What is Forex Trading & How Can It Help Your Biz?

Most people immediately think of stocks and bonds when they think about growing an investment portfolio for retirement or financial independence. However, there are many other financial instruments that can help you grow your portfolio besides equities and fixed income. Trading forex can be another method for growing your wealth and even become a long-term career option for those who know how to trade properly. However, forex trading requires more engagement with the markets and a different set of skills than a buy-and-hold stock strategy.

What is forex?

Forex, short for “foreign exchange,” refers to the currency market in which traders and investors can move their financial holdings from one currency to another by trading at different market rates. Exchange rates constantly fluctuate between different world currencies like the dollar, euro, and yen. Successful forex traders take advantage of smaller intraday volatility and larger interday volatility to consistently make money from exchange rate fluctuations.

Forex’s importance in a post-pandemic world

In today’s post-pandemic world, forex’s position in the financial markets has become even more important than ever before. With mass economic shutdowns across the world and large negative shocks to the financial system, forex volatility has increased. The U.S. government’s move to quickly incorporate trillions of dollars in economic stimulus to ensure that there is sufficient dollar liquidity in the market.
The Federal Reserve Bank also made a move in March 2020 to activate temporary dollar swap lines with 14 countries including Japan and Australia to ensure that these countries had enough dollar liquidity to continue operations. Other countries around the world have also acted quickly, enacting fiscal and monetary measures to ensure that their citizens and businesses receive support during these trying times.
While the main goal of these policies is to ensure that the global financial system continues to operate without major catastrophes or hiccups during this period of extended economic shutdowns and supply chain disruptions, these policy moves have without a doubt led to a change in the amount of currency available in the financial markets. Even with many central banks enacting similar policies in tandem, the increase in currency liquidity, both in proportion to the amount of that currency previously already in the system (ie., the proportion of new euros printed to old euros already circulating) and to other foreign currencies, means that there is likely going to be increased volatility and opportunity in the forex market going forward.

Forex trading is risky

All types of investment strategies contain some level of risk compared to holding cash, but these financial risks tend to be magnified when it comes to active trading strategies. There is always the potential for downside risk and monetary loss if you are trading any type of financial instrument, especially if you are not operating in the parameters of a trading system that has a proven track record. Risk management and position sizing can make or break your portfolio in only a few trades if not done properly. The math for breaking even if you have lost money trading is straightforward – if you lose 50% of a portfolio, it will take a 100% gain of what money you have left to break even with your starting account balance.

Learn how to trade forex properly

Working in the forex markets as a trader means that you will need to be able to successfully understand risk factors and opportunities that will influence your trade. For instance, the dollar has been on a sharp decline over the past few weeks after having been on a strong uptrend in the months prior – without proper training, novice traders will most likely have lost trades during this period of sharp reversal.
In particular, if you are looking to become a trader for a hedge fund or other financial institution, having a diploma from a forex trading course and having a provable track record of profitable trading experience will be crucial to gaining an interview and eventually landing a job in the field. Learning how to trade forex through a good course will allow you to master both trading techniques and how to effectively minimize risks like market risk, leverage risk, interest risk, and liquidity risk. A combination of these skills will indicate to hedge funds and other trading desks that you are well-equipped to do the job.
Trading forex can be a rewarding career, both financially and intellectually. However, it is important to get the proper training before attempting to trade the currency markets, as there is risk involved.