FOREX stands for “Foreign Exchange” or FX. It’s the marketplace where various currencies are traded. FX investment is a speculation in the currency. Price varies by demand and supply of each currency. Profit or loss of FX depends on the difference of the currencies that we trade. The method in FX investment is not quite complex. You’d better buy when the currency is low and sell when it’s higher. Anyway, it’s very risky if the directional movement of trading currency is forecast wrongly. That would be a great loss (buy high, sell low).

In FX market, there’re about 200 major currency pairs. However, investors are likely to invest in highly liquid currencies. The top 5 popular investments are USD, EUR, GBP, JPY, and AUD, respectively. FX trading will appear in major currency pairs such as EUR/USD = 1.1814 which means 1 Euro is equal to 1.1814 US dollars. EUR/USD trading is to buy EUR and sell USD. On the contrary, EUR/USD trading is to buy USD and sell EUR. The popular trading for major currency pairs is EUR/USD, USD/JPY, GBP/USD, USD/CAD, USD/CHF, and AUD/USD.

Those who are interested in starting FX investments, need to apply for membership and open a FOREX trading account with foreign brokers as there’s no Thai institution available for such investment at present. FX investment can generate profits when the prices go up and down. Long position (buy) when the forecast price is high, and Short position (sell) when the forecast price is low. For example, the US economy is predicted to tip into a long-term recession due to the pandemic outbreak. More, concerns about the trade war between US and China contributed to a weak of US currency comparing with EURO. That made the value of EUR/USD higher (USD was weak means that the money is devalued so we had to spend more USD to exchange EUR).

That’s why we decided to Long EUR/USD at 1.1814 which means we trade 1.1814 USD with 1 EUR. After that, if the exchange rate of EUR/USD is higher (as forecast) and reaches 1.2000, it means if we buy back, it’ll generate profit at 0.0186 (1.2000 – 1.1814). On the contrary, if the exchange rate between EUR/USD is not as expected and reduced to 1.1600, our loss is 0.0214 (1.1814 – 1.1600).

The up and down of the exchange rate will be fluctuated by many factors; interest rate, inflation rate, gas price, gold price, economic conditions, politics, local and global events including major statistics of each country like the unemployment rate. The exchange rate is highly vulnerable to surrounding incidents which lead to high risk. There comes an opportunity to make a fast profit while a big loss may possibly happen. As a matter of fact, FX investors must have insight into the global economic circumstances and are able to evaluate how existing impacts will affect the exchange rate so we can make better forecasts in the exchange rate.

Advantages of FOREX investments

• It’s a market with high liquidity as there’re lots of buyers and sellers, and the number of trading is massive when comparing with other investments. FX is the world’s largest money market that you can trade 24 hours a day, except on weekends and public holidays.
• Investors can make profits when the exchange rate is up and down. In a currency pair, investors can Long (buy) or Short (sell). Long when the forecast price is high and Short when the forecast price is low.

Disadvantages of FOREX investments

• It’s a market with high risk as the exchange rate is tremendously sensitive to surrounding situations so the price highly fluctuates. If the forecast is wrong, it will be a big loss.
• There’re no FX trading brokers in Thailand right now so trading is managed through foreign brokers. As FX investments have not been legitimately certified in Thailand, you may be deceived if the brokers are unprofessional.

In summary, FX investment is the same as all other investments which consist of advantages and disadvantages, profit and loss. Before starting the trading in FX market, you’d better study complete information, i.e., select professional brokers, trading mechanism, tools, basic knowledge about investments, and understand macroeconomics. Most importantly, make sure to diversify your investment to an array of assets and don’t throw away all your money in FX investment only. Gradually review your port investment to hit your investment goal. Good luck!

Nipapun Poonsathiensap CFP®, ACC

Independent Financial Planner, Writer and Lecturer