Forex Trading Amidst The Pandemic
You would think that forex trading will significantly be affected by the COVID-19 pandemic. Well, the COVID-19 did impact FX trading but in a positive way. In fact, forex trading increased by 300% during the pandemic.
If you are looking for an alternative investment to grow your capital, you can try forex trading. The best thing is, you can go into forex trading even with minimal capital.
What Is Forex Trading?
If you are new to forex trading, here’s a quick review. Forex, which is a shortcut for foreign exchange, is exchanging one currency for another. This is done for a variety of reasons, such as trading and tourism. Simply put, investors buy and sell currencies for another currency.
If you have gone on a trip and exchanged your U.S. dollars for another currency, then you have participated in the forex market. People and businesses from all parts of the world participate in foreign exchange, making it one of the most heavily traded markets.
An Introduction To Currency Pairs
Before you make your first foreign exchange trading, you must know how to read currency pairs. Currencies are traded in pairs. When you exchange your U.S. dollars for euros for your European trip, two currencies are involved. The exchange will show you how many U.S. dollars (USD) you need to purchase 1 euro (EUR) for your trip.
Three-letter symbols in the forex market designate currencies. For instance, the U.S. dollar’s symbol is USD, and the euro is EUR. EUR/USD symbolizes the currency pair of euro and U.S. dollar.
The most-traded currencies in the forex market are the following: U.S. dollars (USD), euro (EUR), Australian dollar (AUD), Canadian dollar (CAD), British pound (GBP), New Zealand dollar (NZD), Japanese yen (JPY), and Swiss franc (CHF).
What Are Cross-currency Pairs
The primary currency pairs used in the forex market involve the U.S. dollar. Most currencies are quoted against the U.S. dollar, which is the most liquid currency and is considered the world reserve currency. However, currency pairs do not involve the U.S. dollar as their contract settlement currency. These are called cross-currency pairs, and they usually involve either the Japanese yen or the euro.
Even some cross-currency pairs use the U.S. dollar in their calculation. However, there are cross-currency pairs, such as the GBP/JPY, that were created to make the exchange possible without going through the U.S. dollar.
Cross-currency pairs have made international transactions and payments easier and cheaper. Since the exchange does not go through a conversion to USD, only one transaction is needed.
They can also be used in forex trading. The most commonly-traded cross-currency pairs are divided into two groups: the major crosses and the minor crosses. The major crosses include EUR/CHF, EUR/GBP, EUR/JPY, and GBP/JPY.
Forex Trading Amidst The COVID-19 Pandemic
One of the factors that affected forex trading during the pandemic is the rising unemployment rate. The demand for the U.S. dollar increased since it is the world’s global reserve currency.
The forex is a liquid financial market. Someone is always ready to make a trade with you. Trades can be closed quickly with meager transaction fees. You can even trade 24 hours a day, five days a week.
The current pandemic makes a volatile market condition. The high volume of transactions every day can make the prices of some currencies volatile. Traders can achieve higher returns by taking advantage of these price movements.
Probably one of the best things about forex trading is that you do not need a significant amount of capital to start trading. You only need to make a small deposit, referred to as the margin, to start a trade.
Forex trading is a separate asset class from the stock market. Trading in the forex market allows you to diversify your investment portfolio. The stock market may fall, but the forex market may be left unscathed. The forex market will continue to exist, even if there are few traders.
If you are looking for an alternative investment that’s accessible and flexible, consider the forex market. Of course, as with every investment, it is important to do your research first, study, and find the trading style that you are comfortable with.