Trading foreign currency (FOREX)
Forex investments are a great way to diversify your retirement portfolio if you are interested in self-directed IRAs, but have smaller accounts to work with.
The foreign exchange market is the largest financial market in the world and has become popular for several reasons: Investments are liquid, easier to control, and allow an investor to start with minimal funds. Liquidity is the ability of a position to be converted from a holding and back to cash, which enables investors to enter and exit trades quickly. In forex trading, you base your acquisition or selling position on whether you think the value of currency you are acquiring or selling is on the rise or about to fall.
Most foreign exchange markets are open 24 hours a day, from Sunday evening through Friday afternoon. This wide range of hours enables trillions of dollars to be traded daily and provides nearly unlimited access to the market, allowing more control than traditional equities markets.
These investments involve a contractual agreement between two entities – a buyer and a seller – to exchange a specific commodity at a predetermined price and date. The commodity and cost is set at a price and terms agreed upon today, while the settlement takes place on a designated future date. The seller determines the sale price of the commodity based on anticipation that the cost of the asset will decrease in the future. In turn, the buyer agrees on the purchase cost based on the speculation that the asset will increase in value by the date of the exchange of the commodity.
Assets in futures contracts can include both hard commodities (those obtained through mining processes, such as coal, iron ore, oil and copper) and soft commodities (those that are cultivated agriculturally like sugar, soybeans and wheat). Investments can also include stocks and interest rates, as well as securities, currencies and intangible assets.
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