The foreign exchange market, also called the currency market or forex, is the world's largest financial market accounting for more than $5 trillion average traded value each day. Comprised of banks, commercial companies, central banks, investment firms, hedge funds and retail investors, the foreign exchange market allows participants to buy, sell, exchange and speculate on currencies. There are a number of ways to invest in the foreign exchange market.
If you are looking for a highly liquid trading arena that allows you to speculate on a nearly 24/6 currency market, forex currency trading may be right for you. Trading in forex should be limited to risk capital, and the off exchange foreign currency market contains some unique risks, but for sophisticated traders it can provide the opportunity to profit from a very active global market.
Recent technological advances, and changes to the way that we conduct trading, have resulted in more people accessing various investing opportunities. One of the asset classes gaining in popularity recently is currencies. If you want to invest in foreign currency, it is relatively easy to get started. The language of foreign currency trading is couched in investment terms, but you aren’t actually trading anything at all. Instead, you are basically speculating about how currencies move in relation to each other. You make or lose money based on whether or not you are correct.
If you want to trade foreign currencies, you can open an account with a forex broker, and begin trading that way. There are a number of forex brokers out there. If you aren’t interested in trading currencies with a broker, it is possible to invest in foreign currencies with the help of Exchange Traded Funds. There are ETFs that allow you to invest in a basket of currencies, or invest in currencies with certain characteristics. There are ETFs that focus on emerging market currencies, as well as those that specialize in commodity currencies.
For those who decide to invest in currencies and are comfortable making their own judgments about currency strengths and countries' fundamentals, a forex trading account or foreign-currency certificates of deposit are good options. Before you invest in foreign currency, whether you trade on the forex market or invest in a fund, make sure you understand some of the fundamentals that affect the currency markets, and learn the risks associated with foreign currency trading.