There is a lot of talk about the currency markets these days. Between the tanking of the Turkish Lira in China and Brexit, and of course our dollar, it seems that the currency talks are making headlines on a daily basis.
So what does this mean – and of course – how do you make money out of it all?
Currencies are all traded in the forex market – or FOREX – which is actually a 24-hour market, as currencies are constantly traded around the world.
But a big difference between our equity market and the world of currencies is that currencies trade in pairs.
So if you want to bet on, say, the dollar, you also have to bet that a different currency, like maybe the pound sterling, is going to go down.
Trade looks like this: USD / GBP
Unlike if you are just acquiring shares, say Amazon
(AMZN) – Get the Amazon.com, Inc. report . You just bought them and hope they keep going up.
With currencies, you have to buy both. And place a bet that one goes up, while the other goes down.
So now how do you make money with all of this? What affects currency prices?
- Trade for beginners. If the demand for a country’s goods and services increases – the demand for its currency will likely increase too
- Inflation can also drive currency prices down – mostly inflation up – down
- Inflation could also cause interest rates to rise – to curb inflation – and this in turn can push up the prices of these currencies –
- A country’s political landscape can make or break a currency. Riots in the streets? The government goes bankrupt. You can bet the currency will collapse.
Are you following all this? I know – these markets are super fast, super confusing – and not for the faint of heart. So be careful and use stop losses when making these trades.
And for more on all of this, follow me @tracybyrne.