The Market: The swings in the foreign exchange market

Imagine you are battling yourself over finances. You cannot pay your car payment because you do not make enough income. You do not have a job nor can you find one near school because the job market is already limited from being a small area with a large population. To make it worse you do not have anyone to help you out through this rough period of time we call college. You all can relate. This problem can be overcome with foreign exchange. You heard me correctly. I said currencies. The foreign exchange market, otherwise known as Forex is actually the largest market in the world. It is estimated that $1.49 trillion is exchanged on a daily basis between buyer and seller. This figure tops the stock market, the bond market and the derivatives market. I find times when currencies are on a trend long term and ride on it until I feel it is going to end.

Major banks, international banks, institutions and individual investors like myself buy and sell up to hundreds of currencies in any given second. All currencies traded in the foreign exchange market operate 24/5. The foreign exchange market is open at 5 p.m. EST Sunday evening and closes at 5 p.m. EST Friday afternoon. Unlike the stock market, transactions are immediately posted to your account and are able to be withdrawn at that time. You do not need to wait three business days like a typical stock sale. For a long time investor like myself, this is useless because liquidity is not a problem. For small time investors who need cash immediately, it is helpful. For example, if you think the Euro to U.S. dollar conversation rate will strengthen, thus rising in numerical value, and you place a buy and it strengthens, you can close your position and have your funds immediately in your bank account usually the next business day. Most online foreign exchange brokers have no issues with liquidity being that the foreign exchange market is very liquid. After all foreign exchange is currencies exchanging hands between buyer and seller.

If you have no clue what foreign exchange is, then this is the time to learn. The foreign exchange market is currently extremely volatile turning people with small investments into massive cash outs. Just the other week, the Switzerland currency, the Swiss Franc (USD/Chf), strengthened 20 percent from 1.02 to 0.84. This means that if you had a sell position in the USD/Chf you would have had your account balance increase by at least 2,000 percent. Yes, 2,000 percent. Twenty times return on your bet on the movement of the price in the Swiss Franc. Now who in the world guessed that this would happen? A handful of people did and most of them are humble and keep quiet. On the other hand, many banks and online brokers went bankrupt from the massive move. A lot of major accounts and investors lost everything they had if they had long in this position against the Swiss Franc. Another major swing has been the weakening of the yen. Japan’s currency has gone from under 100 yen per 1 U.S. dollar to 118. One yen is worth less than our penny. A lot of investors have been long on the weakening of the yen since last year and they have cashed in hugely. Many gains in the foreign exchange market are more than 100 percent of your original investment, because there is no limit to where currency exchange rates can go. In the stock market, most major stocks do not move more than 100 percent within a decade. In fact, most stick within a range or slowly go up over a long period of time with inflation.

The foreign exchange market is typically steady in terms of rising and falling prices, but it can become highly volatile if you are able to follow the flow of currencies and their conversion rates. Good luck and happy investing.

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