Why now is the time to start Forex trading

If you’re new to the financial markets and keen to start trading viable asset classes, you may well be initially attracted to stocks. However, equities aren’t necessarily the best option in the current economic climate, especially as they may require investors to hold onto assets that continue to depreciate in value.

In this respect, the forex market may offer a viable alternative, with this market now seeing an estimated $6.6 trillion traded globally every single day. This certainly offers a different angle to the stock market and other asset classes, while potentially enabling investors to chase increased profit margins.

In this post, we’ll appraise the forex market in further detail, while asking whether or not now is the time to start trading currencies?

What is Forex Trading and Why is it Unique?

The forex market (or the foreign exchange) is essentially a decentralised or over-the-counter marketplace that allows for the exchange and trading of international currencies.

This sector also determines foreign exchange rates for every single major and minor currency in the world, while governing all aspects of buying and selling underlying assets.

Currencies are typically traded in pairs, with options such as the GBP/USD, USD/JPY and EUR/GBP amongst the most popular asset classes. As you can see from this selection, the US Dollar remains the market’s most dominant reserve currency, accounting for an estimated 88% of all trades completed last year.

The market is also relatively unique, thanks largely to the derivative nature of currency and the fact that traders are able to speculate on price movements in the forex market rather than assuming ownership of the underlying financial instrument.

This makes it possible to achieve a profit even in a depreciating marketplace, while the highly-leveraged nature of the foreign exchange also enables you to earn far more than your initial deposit size.

What Factors Impact on the Forex Market?

Another distinguishing attribute of the forex market is the extent to which currency values are impacted by macroeconomic factors.

More specifically, currencies are bound to domestic monetary policies, which simultaneously impact on factors such as interest rates, inflation and GDP growth.

For example, during the coronavirus outbreak we’ve seen a number of countries introduce stimulus and quantitative easing measures to negate the socio-economic impact of the crisis. These include minimising the nation’s base interest rate, which in turn deters foreign investors and gradually lower the value of the currency.

Similarly, an increase in the base interest rate will increase the demand for currency and optimise capital inflows from overseas, boosting economic and financial sentiment in the process.

Is Now the Ideal Time to Start Trading?

Despite a number of currency values having fallen since the beginning of 2020, now is arguably the ideal time to invest in the forex market.

Certainly, the US dollar has remained strong against most other major currencies during this period, providing an opportunity for investors to profit from pairing such as the GBP/USD and the USD/JPY.

In more recent times, the dollar has faltered against the backdrop of a proposed $2 trillion stimulus package, while China has led a resurgence of emerging currencies in the Asia-Pacific region.

The Renminbi has jumped by more than 1% during the last week as the greenback has weakened, potentially creating a small window of opportunity for investors to profit from emerging currencies.

If you’ve been learning about the forex market but want to take advantage of the opportunities currently available, we’d strongly recommend that you consider honing your skills and strategies through a demo account.

Available through all online trading platforms, a demo account enables you to bridge the gap between theoretical and practical experience, by affording you access to a simulated and real-time market that doesn’t require you to risk your hard-earned cash.

It’s also wise to start small and target just one or two currency pairings to speculate on, before scaling your efforts organically in line with growth and experience.