Currency Investing 101--Basics of foreign exchange

Investing in money or currency has been around a long time.  Traditionally, it was mostly available to very large corporations and governments to trade.  However, today it is more and more accessible for anyone that wants to invest into the market.  Some say this is the most liquid market in the world and there are over 1 trillion in USD that are bought and sold every day.  Globalization, mass communication and the internet has made this type of investing very accessible for everyone and has made this market very attractive to a lot of people.  It basically is operated similar to trading stocks.  People invest in one currency hoping to sell it when it is worth more.  People have mimicked stock trading and created day traders, short term and, long-term investors for the currency investment market.  

The purpose of currency investing is to support trade and investing between nations. It does this by allowing the currency of one country to convert to the currency of another country. So to invest, a person or entity will purchase a certain amount on one type of currency hoping or betting that it will increase or decrease against another type of currency. The currencies are traded in pairs. This means that you are always long in one currency and short in the other. Here is a basic explanation. Say a farmer goes to the market and buys a cow for $2500. The farmer is then long or bullish in one cow and short or bearish the $2500. Thinking the value of the cow is going to go up and the value of the $2500 USD is going to go down. This is similar when buying gold. Say you buy one gold piece for $1500. This means you think the value of gold is going to rise and the value of the $1500 USD is going to decrease (which is not a bad idea right now). This idea is the same in the currency investment market. You buy $1500 Yen thinking that it is going to rise against the $1500 USD. The only difference is that there is not physical exchange of money it is all calculated and tracked from computers.

The foreign exchange market is not regulated exchanged or governed over by any central body.  In a way it is just two agreements made about buying and selling currency and the great thing about it is that the self-regulation makes it work extremely effectively.  Many of the agencies that govern investments can take a great lesson from the foreign exchange market just because of the self-regulation. This is essentially what happens when free markets are allowed to flourish.  

Another surprising fact about the currency investment market is that it is completely okay and legal to take and use insider information.  If fact it is practiced and used by many countries all the time.  

What is interesting about the currency market is that you are really not exchanging or trading any money what so ever.  What?  I heard you ask.  It is a purely speculative market.  There are no actual exchanges of money that happens on the market.  It is all computer entries and data exchange about your currency investment.  

This information is not written for investment advice.  The intention is for the reader to gain a basic knowledge about currency investments.