Short Term Currency Trading | Finance

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By: Dennis Hartman

Currency trading is based on changes in the value of one currency against another.

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Investing in a variety of products and securities can be a solid and balanced approach to growing your wealth. For some investors, this involves the risky realm of forex, or Forex markets. Forex markets allow investors to conduct short-term currency trading which can pay off quickly compared to other investments, but which can also lead to large losses just as quickly.

What currency transactions mean

Short-term currency trading is different from other investments because it always involves two currencies, one of which is exchanged for another at the current exchange rate. Just as investors exchange US dollars for stocks or bonds, they can also exchange those same dollars for euros, pounds sterling, Swiss francs, Japanese yen or any number of other world currencies. Investors from other countries trade in short-term currencies without ever using dollars. Exchanging dollars for euros, for example, indicates that you expect the value of the euro to rise relative to the value of the dollar, before the reverse happens. If the euro goes up, you can quickly sell your euros for more dollars than you originally spent, allowing you to make a quick profit.

How to trade

Currency values ​​fluctuate daily and even hour to hour during the same day. You need immediate access to current exchange rates and the ability to trade to be successful in short-term currency trading. Currency brokers provide this information and execute trades for a fee, which can be flat rates per trade or based on a percentage of the value of each trade. To make the right transactions at the right time, you need to know about international monetary policies and the latest news that will affect how investors value each currency against all others.

Risk

Short term currency trading is very risky and very volatile. Currency values ​​change based on economic news and fiscal policies of the government of the country that uses the currency. When a country’s economy is strong, the value of its currency is high. Fears of debt, trade deficits, and political instability can all cause a currency to crash. This means that many different factors can affect short-term currency values, causing them to rise and fall quickly.

Advantages

Short-term currency trading has distinct advantages over other investments. As a volatile investment, the currency can rise in value quickly, resulting in gains that would take months or years to gain in more conservative investments. The higher risk also means faster results and less waiting to see if a given investment bet will pay off. Currency trading complements a prudent investment portfolio filled with low volatility securities.

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