While there are enumerable options that come to mind when we start thinking about financial instruments to invest in, currency trading and investing is one of the more lucrative ones of the lot. Investing in currencies is a way to become engaged with global macroeconomics by generating more money. Currency investment sounds so high profiled portfolio but there are a lot of misconceptions present. People can often make wrong decisions which may result in an economic ruin. It often requires a good learning experience before investment. It allows investors to trade currencies and potentially make more money and earn higher returns.
There are five tips that must be kept in mind before investing in any currency -
1. Consider using a broker to ensure that you are updated with all the happenings of the market and that their expertise guides you in the right direction
2. Invest for the long term and leverage your time in the market to the fullest
3. Stick to major, stable currencies who are stronger against global changes as well
4. Buy an ETF or mutual fund, rather than individual currencies
5. Beware of leverage currency investments if you are unaware about the multiple dynamics that come in to play for such trading.
Currency trading is the act of buying and selling international currencies. Very often, banks and financial trading institutions engage in the act of currency trading. Any Indian resident or company including banks and financial institutions can participate in the future markets. However, NRIs are not permitted to invest in Indian currency. Forex trading is not much profitable for Indian investors, because the RBI regulations limits the trader's option.You can earn higher returns and make more money in Forex trading.
Forex trading is not going to take the $10,000 account and turn it into $1 million. The amount we can earn is determined more by the amount of money we are risking rather than how good our strategy is. The currency exchange rate is the pace at which one currency can be exchanged for another. It is always quoted in pairs like the EUR/USD. If the exchange rate rises, you will sell the Euros back and making a profit. One should always keep in mind that forex trading involves a high risk of loss. Banks and credit unions generally offer the best exchange rates, and many won't charge extra fees to exchange currency.
ETF and Mutual Funds have a leverage over individual currencies. Investors can avail to a traditional mutual fund or an exchange-traded fund (ETF) to establish a low-cost, well-diversified portfolio of the individual currencies they wish to trade in. Moreover, 87 percent of fiscal advisers recommend ETFs to their clients or use them themselves. In simpler terms an ETF or Mutual Fund can help you earn higher returns and make more money in a short investment, because the equity is shared between many investors. It will also lower your loss upon any rash decision.
Forex investment is, however, a double-edged sword. The concept of applying other people's capital to enter a transaction can also be used in the forex markets.Leverage involves borrowing a certain amount of the capital needed to invest in currencies. In the case of forex, that capital is generally borrowed from a broker. In the foreign exchange markets, leverage is generally as high as 100:1. This implies that for every Rs. 1,000 in your account, you can trade up to Rs. 1,00,000 in value. The reason that Forex Market makers offer such colossal leverage is because leverage is a subject of risk. While trading in currency India, investors need to be cautious. Leveraged currency investment can lead to a fiscal fallout if the accounts are not managed properly.
By only purchasing currency with the cash you possess, you can potentially mitigate any loss you incur. The best of traders harnesses their skills through practice and discipline. They perform self-analysis to see what determines their trades and meditate on how to keep fear and greed out of the equation. These are the skills any forex trader should practice. And always remember, practice makes a man perfect, specially while trading in currency India.