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Understanding Forex Signals and the Markets

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Forex Signals and a Businessman Visual Representation

When it comes to investing, the options can seem limitless. Frankly, they can be a bit confusing. Some may overlap in one way while being very different in others. This adds to the cloud around understanding which investments might be right for each individual investor. Then, once investors understand the concept of these various investments, it’s time to think about how someone actually invests in these assets, whether they are forex signals, stocks ETFs, commodities, or futures.

Let’s explore some of the most common types of investments and how to get started.

Forex Signals

Forex may sound like Rolex’s distant cousin. It’s actually a common type of investment that is short for foreign exchange. Essentially, these investments work by trading foreign currencies. It’s not common for currencies and exchange rates to change drastically in the matter of a day, month or even year. However, they do still change enough to allow savvy investors to make money on forex signals.

This type of investment is overall secure in the long run. Why? Because anyone going to another country will likely need to exchange money, and that’s where the cash is made. In fact, forex is such big business that the stock market pales in comparison. As of 2012, “the forex market traded in excess of U.S. $4.9 trillion per day,” according to Investopedia.

Another reason avid traders like forex signals investments is that exchanges are available 24 hours a day. So, business can always be conducted, not only when Wall Street is open for business.

How to Invest

Forex signals trading is highly liquid, since at its core, it deals with currency.  Trading is done “over-the-counter” which means that it isn’t done through an exchange like the stock exchange. Instead, it’s done through networks of dealers and investors. 100,000 currency units is usually one of the smaller amounts that are traded, with the broker footing a larger chunk of that bill than the investor. In all, trades take about two days to complete. This can tack on an added layer of volatility.

Stocks ETFs

Even if you aren’t familiar with forex signals, most investors are likely familiar with stock ETFs. They are similar to regular stocks and mutual funds, but function a bit differently. Stocks are bought specifically for one company, and the price fluctuates throughout the day. On the other hand, stock ETFs refer to a bundle of equities instead of just one. Their price still fluctuates throughout the day. This is unlike mutual funds, which wrap up with whatever the amount is at the close of the market. These equity groupings will typically be from the same general grouping, like energy or tech. Usually, they should fluctuate in fairly similar ways, if at all.

Some people argue that because ETFs are grouped, they present more risk and volatility than simply buying a specific array of stocks. That’s not always the case. Paying attention to how ETFs are distributed can make them equal to or less risky than buying stocks. This is because investors are betting on an industry succeeding, rather than a company.

How to Invest

Investing in ETFs does have a price tag associated with getting involved. It’s not just the cost of buying in, either. Stock ETFs can only be traded through a broker. This means there will likely be trading fees on top of overall management fees. However, there are online brokers and websites that will do this for a lower fee.

This isn’t always the best way to go, though. By sacrificing the chance to talk with a financial professional who has proven results with stock ETFs, you’re putting yourself at risk. For example, if you think you want a certain set of ETFs, but aren’t sure, then you may spend $10 making the trade, only to spend $10 more to switch it again down the road. This is where having a financial professional in the beginning is helpful. It also gives you more money to invest in the long run.

Commodities

While people may not think of items like gold bracelets and rings as commodities, they’re worth their weight when it comes to investments. Of course, that’s not how commodities are typically traded, but commodities are right at our fingertips every day. Tangible, basic goods like precious metals, oil, natural gas and even beef are all considered commodities.

Each commodity has it’s own set of standards that determine the price based on quality, and some might need to fulfill a minimum quality level to even be considered for traditional commodities trading. For example, according to the Chicago Board of Trade, 5,000 bushels of wheat = one wheat contract. Various grades also affect the price, like #2 Soft Red Winter being sold at contract price, but #1 Soft Red Winter is sold at a three cent premium.

How to Invest

Investing in commodities is fairly simple and doesn’t require a broker, although consulting a financial professional never hurts. You can easily buy metals like gold and silver from companies online who specialize in helping people secure these funds in case there’s a bear market. In fact, a rule of thumb is to have 5% of a portfolio diversified to gold and commodities. Since metals aren’t as volatile as living commodities, like beef and produce, they are considered one of the safer choices, especially in uncertain economic times.

To trade commodities, investors will likely need a broker’s assistance, keeping in mind any associated fees. When trading, commodities are broken up into metals, energy, livestock and agriculture. Based on your financial goals (i.e. growing wealth or reducing risk), you’ll choose to trade in one or all of these areas. These are traded as futures, which we’ll go over next.

Futures

Futures are one area of investing that may prove a little confusing to people because many investment offerings include futures. What are they, though?

Basically, futures are contracts between a buyer and seller that their transaction will take place on a future date at a future price. This is unlike options in that the buyer must make the purchase at the designated date and price. There are many types of investments that can have futures contracts, from commodities to forex, both of which we previously touched on. Typically, people choose futures contracts as a type of hedge against some kind of instability if the market is looking a little volatile in one area.

How to Invest

Since futures have a wide range of options, you don’t always need a broker to help you out when decision time comes, though that’s not a bad idea. This is because futures require a fair amount of research in order to be successful at them. It means studying and timing the markets and being on the lookout for everything that might affect your decision. Again, remember that this is not an option, so once you’ve signed a contract, you must buy them.

Of course, there are websites that will allow you to make the trades yourself, but there may be some fees, depending on which types of  futures you want to buy (i.e. forex vs. commodities).

Because of this, the best way to ensure that you avoid fees and expensive, bad decisions is to– at the very least — sit down and talk with a broker or financial professional. Get in touch with FFR Trading today, and we can point you in the direction toward long term, proven results.

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