Finance: Learn How To Invest In Forex Exchange

The term foreign exchange refers to means of payment in a foreign currency such as the US dollar, the British pound, or the Swiss franc. Such foreign means of payment are required, for example, for vacation trips. This can be in the form of cash, i.e. coins or bills. However, most foreign exchange is not a means of payment in the form of cash, but credit balances in foreign currency.

Why invest money in foreign exchange?

Those who invest their money in foreign exchange can pursue various motives. Some are looking for protection against inflation. Other investors, on the other hand, want to diversify their portfolios with currency investments. The background is that exchange rates hardly or does not at all correlate with other asset classes such as stocks and bonds. That is, they develop independently of each other. According to modern portfolio theory, the overall risk of a portfolio can be reduced in this way. This is known as diversification.

Protection against inflation, speculation, and interest gains are the most important reasons for investing in foreign exchange. Thus, reading the forex broker review can provide you with vital information on how to be successful with forex trading in the long run.

Opportunity for currency gains

Most currencies fluctuate over time. As a rule, however, trends in the currency market are of a more long-term nature. That doesn’t mean, however, that there can’t be sudden distortions in foreign exchange.

There is always a chance of currency gains when the home currency devalues ​​against the foreign currency, i.e. becomes less valuable.

With currency investments, the chance of currency gains is offset by the risk of currency losses.


Speculative motive

This investing, also known as forex trading, is particularly popular with risk-taking investors. The trader expects a specific, mostly short-term trend in a currency pair and relies on this development with leverage.

Anyone who speculates with stocks or currencies has chances of high profits but also losses.

The starting point is certain currency-relevant events such as central bank meetings or economic figures. But technical chart signals can also be the trigger for currency speculation. The aim of forex trading is to participate in the expected exchange rate development with little capital investment, i.e. with leverage. The instruments used for trading are usually leveraged products.

How do foreign exchange rates affect a country’s economy?

For countries with strong foreign trade, exchange rates are an important factor for economic development. An export nation like Germany, for example, benefits from a falling or weak euro because domestic products are becoming cheaper for foreign customers, which in turn increases demand.

Politicians Can’t Do Anything About Inflation — Economists Say

Lady accounting her expenses


Life in Germany is becoming more and more expensive – from shopping to refueling to heating. The inflation rate was almost eight percent. People have been struggling to keep their budget.

Finance Minister Christian Lindner has asserted that the fight against inflation is the top priority. However, there is not much the government can do to combat the causes of the expensive prices.

Politicians like to see themselves in the role of the energetic doer. Inflation is high? Then we cut a few subsidies, change a few laws and inflation subsides. But unfortunately, says the Dresden economist Joachim Ragnitz, this does not work. The Politicians can hardly do anything about the current inflation: “The high inflation rates we have are determined by factors that are outside the political sphere of influence. Above all, the supply chain problem and everything that has to do with Ukraine – such as rising energy costs, which are reflected there – cannot be solved by politics,” says Ragnitz.

As long as goods for half the world are stuck in China, as long as energy remains scarce because Europe deliberately refrains from Russian oil and gas supplies, inflation will remain. The FDP’s budget spokesman, Otto Fricke, also admits that the government’s options are limited: “If you were to say that we are trying to lower prices in general, for example by lowering VAT, then this means that the moment the tax is raised again later, inflation is back.”

Possibilities of the ECB

And yet there is one institution that has an influence on inflation: the European Central Bank (ECB). If it raises its key interest rates, it would be more attractive to invest money. Then the demand for goods would fall and with it the increase in prices.

However, the effect is not immediate, says Reint Gropp from the Halle Institute for Economic Research: “Just because the ECB raises interest rates, energy prices do not fall. At least not directly. Moreover, supply chains will not be improved by the ECB raising interest rates.” It is not so clear that the ECB’s toolkit – above all raising interest rates and stopping bond purchases – is now of any use.


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No targeted measures against inflation

Gropp also sums up: The decisive problem is the lack of supply – for goods, for energy. The Federal Government could hardly influence both. However, it can give money to people who are in social distress due to rising prices: “It is important to avoid the watering can.” However, it is precisely such measures that have been decided in part. A reduction in the tax on gasoline would benefit everyone – even those who might not need it at all. “That’s just not targeted. This means that we are wasting a lot of money,” explains Gropp.

Economic researcher Ragnitz also argues that the government is currently not acting precisely. The fuel discount would perhaps help many motorists a bit. It is not even clear how much prices will really fall as a result. Because the discount in turn leads to more demand. “All these measures that are currently being taken are pure populism and that has no effect at all,” says Ragnitz.

The question remains: What helps against inflation? The answer in a few sentences: If production all over the world were to return to normal, if the transport of goods ran smoothly again, that would help. If Europe had plenty of energy available again, it would probably bring even more. But until then, it won’t get any cheaper.