There are several ways you can make extra money and save for retirement. Some strategies have been proven to be more effective than others, but the one gaining in popularity recently is forex trading.
The foreign currency trading market swelled to a record $6.6 trillion in exchanges throughout the day in April 2019. Compared to how much was being traded on the market in 2016 ($5.1 trillion), the expansion suggests a growing number of people interested in foreign currency exchange.
To learn more about how forex trading can be an effective retirement investment strategy, keep reading this guide and discover how to make money trading foreign currency.
What Is Forex Trading
Forex trading sounds more complicated than what it consists of. The foreign exchange (forex) market is a financial market consisting of individuals and institutions exchanging one currency for another to make a profit on the difference in value.
The foreign exchange market is enormous, exchanging trillions of dollars each day, making it the biggest financial market in the world by size. Many exchanges happening every day also make it very liquid or easy to exchange from one currency to another. The market differs from the stock market, where it is open five days a week, 24 hours a day.
Trading currencies can be an excellent way to diversify investments and give yourself a chance to make a profit.
How Does It Work
Investors and speculators from all over the world exchange currencies for one another. Individuals and institutions will exchange currencies for several reasons, such as:
- Buying foreign products
- Traveling to another country
- As a portfolio hedge
- Or, for speculation purposes
Many Financial institutions such as commercial banks, hedge funds, and investment banks will exchange currencies in the hopes of making a profit. The same goes for individual or “retail” traders,” they will speculate and exchange currencies when they believe they can make a profit.
With the forex market, when you go to exchange currencies, you are trading a “currency pair.” The currency pair is the simultaneous buying and selling of one currency for another.
For example, the most popular currency pair is the EUR/USD or Euros to U.S Dollars.
How to Make Money Trading Forex
It’s important to note that although the forex market can be one of the best investments strategies, it can also be considered a risk because of all the factors that need to be considered.
The first thing you will need to do is research the currencies and understand what makes them change values. Some of these factors include:
- The level of inflation
- How stable the government is
- Consumer confidence in the currency
- Interest rates
- And the trade balance
After that, you will need to set up a brokerage account to get started. It’s essential to research the different brokerages beforehand to ensure you get the most professional and performing platform available.
Perfecting Your Retirement Investment Strategy
The earlier you can begin saving for retirement, the better the outcome will be. Forex trading can be an excellent addition to any retirement investment strategy to help boost your savings. Keep in mind that foreign currency trading can be a challenge, and you should always practice good risk management techniques to protect your portfolio.
To learn more about the forex market and other investment strategies, head over to our blog!