Being an international road warrior, I was forced to learn the lessons of currency trade. While traveling, currency trade is a minor annoyance. And it opened my eyes to the world of currency trades as an alternative method to say, playing the stock market. It turns out currency trades is an interesting niche market, commonly referred to at the Forex market or the FX market. Like many folks, I didn't realize that currency trade is the largest financial market in the world.
In this primer Tcat Houser will give you the overview from a investment angle. In another article, I'll give you the heads up as an international road warrior.
Currency Trades are unique from any other type of investing in the sense there is no regulating body or exchange. The most formal body you will find in currency trades is the National Futures Association (NFA). Members of NFA agree to binding arbitration for any disagreements. And that is about all the rules you are going to find in currency trade. In other words, there are no caps and no penalty for using privately found data. In the stock market, this is known as insider trading, and you are future toast if you do this in stocks.
Also unlike the stock market, currency trading does not operate on commissions. The dealers in the FX market make their income though the bid-ask spread. This is much how the best currency trades work for the casual traveler. (Tcat Houser will cover that in a separate article and if you landed here, rule #1 is never do a currency trade at an airport).
In currency trades there is a bit of jargon to learn. The first piece to understand goes like this. Currency trades are always in pairs. For example, USD/Euro. If you are selling US Dollars and buying Euros, you are "short" (selling) dollars and "long" (buying) Euros. In theory, almost every currency is on the market. (Some like the Cuban National is not). The four major pairing are:
Euro and dollar. Dollar and Yen. British pound and US dollar, finally, the New Zealand Dollar and US dollar. Did you notice that the US Dollar is the common element? The same is true with oil. This means that a weak US dollar drives up oil prices. A strong US dollar tends to push oil prices down.
The shove-tug in currency trades impacts a wide range of topics beyond oil prices. A strong Euro to a weak dollar helps tourism into the US. And help US exports. It also makes products made across the pond more expensive in the US. It all gets pretty complex, quickly.
Tcat Houser is a frequent traveler around the planet, doing research, writing books, articles and speaking. Often, though not always, he uses his own Internet-based travel agency, http://www.travel4roadwarriors.com.
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