As an investor and retiree, you might be thinking of diversifying your investments and finding new ways to increase your earnings. The foreign exchange market is the largest and most liquid trading space in the world.
Investing in the forex market means trading one currency against the other in an attempt to profit from fluctuations in their exchange rate. With a round-the-clock market, forex trading is a highly flexible investment space—something you can do even if you choose to retire in Malaysia or Thailand. In fact, some superannuation plans incorporate forex trading in their portfolio.
As opposed to the stock market, there are limited options in the forex market. Instead of companies and instruments, you trade in paired currencies such as the USD/GBP and the USD/AUD. A typical forex broker offers 20 or less currency pairs to choose from. This vastly limits the scope of things you need to consider and learn. You only need to be an expert in two or three currency pairs to excel in the forex market.
Similar to stocks, you buy low and sell high to turn a profit. You earn money with every fluctuation in the pair—profiting from both the appreciation and devaluation of currencies. With minimal investment requirements, anyone can start trading for as low as AUD200.
Leveraging to maximise gains
Leveraging gets a bad rep in stock markets. In the forex market, however, leveraging is one of the best ways to turn a big profit with just a small amount of investment. This lets you amplify your trade up to 200 times or higher. Although the risks are magnified too as you can lose large amounts of money.
The Balance notes that not having enough capital is one way amateur traders are lured into leverages that are too high for their level of experience. After all, you need money to make money. A feature by FXCM entitled ‘What is Forex?’ suggests you start trading with lower leverage ratios until you feel more comfortable in the market. Some brokers, however, have a minimum margin requirement—letting them simply close your position before your balance turns negative.
Choosing your strategy
Day trading is the best strategy for beginners as it gives traders complete flexibility. Day traders earn from fluctuations in fifteen-minute differences of currency movements. Depending on your how much you have leveraged, day trading can be a lucrative yet low-risk strategy. Currently, the Australian Securities and Investments Commission lists several day trading apps where you can earn by the hour.
More experienced traders do swing and position trading. These trading strategies last for weeks, even months. They look at the underlying health and geopolitical trends in the fiat currency’s countries to base their bet on a position.
Is now a good time?
With the low interest rate environment and a looming recession on the way, forex trading is a good investment right now. As forex trading earns through fluctuations, volatility is the name of the game—making it recession-proof.
In fact, the Australian dollar is the most volatile currency in the world at the minute. This means more opportunities to profit.
With so much geopolitical tension right now, the uncertainty is sending the forex market into overdrive.
There’s an array of strategies that traders employ in the forex market, and for you personally, it all depends on your risk appetite. Careful planning and accumulating experience along the way are the most important tenets in succeeding with forex trading.