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Smart Investor Tip of the Day
Better known as forex trading, foreign exchange trading is a very popular investment activity done by intuitions and individuals. It is a market that swaps currencies among different countries with high hopes of turning a profit. For example, you can trade CAD dollars with USD dollars. “Going Long” is an expression when you place a buy order on a currency pair (e.g. CAD/USD).
Normally forex trading is done by a broker and because in today’s age of the internet it is a very simple process to make a buy/sell order on currency pairs.
Because of the 24 hour nature of forex trading exchanges are always happening at all times. However, they are not open on weekends. More specifically, markets are open based on the time in Australia on Sunday evening and closes based on the time in New York on Friday.
There is no time limit on how long one holds a trade. Trades can be held for minutes or years. It is up to the trader and their intended goals.
Foreign Exchange trading exists primarily for business transaction reasons. When companies do business outside their country they will normally have to exchange their native currency to the foreign country’s currency before the transaction can be completed.
But because of the boom of the internet speculative trading by individuals has become very popular. Especially since the cost to make a currency pair trade is very nominal.
For example, if a trader (or business) expects the EUR to rise relative to the USD they would place a “EUR/USD” trade. This is more like trading Euros against USD rather than simply buying Euros. This is known as going long because if the EUR rises relative to the USD then the trader can close the trade and make a quick profit.
Be warned though. Although it sounds simple to make exchange trades it takes years of experience to predict markets and ultimately profit from them. So entering the forex trading market is not for beginners. Most brokerage firms in Canada, like Questrade, offer forex trading and also provide demo accounts for beginners to learn the ins and outs to this field.