GBP USD investing in foreign currencies is a great way to diversify your portfolio. Trading foreign exchange, or foreign exchange for short, is a little more complicated than trading stocks, mutual funds, or investment strategies backed by bonds. However, if you are interested in this asset class, learning the basics will give you a solid foundation to build on. This guide will tell you everything you need to know to start GBP USD Investing in currencies.
What is Forex Trading?
Forex (shortened from “foreign exchange”) is a financial markets term referring to the buying and selling of currencies. Foreign Exchange Trading refers to companies that deal with the buy and sell of currencies.
What Is Foreign Currency Investing?
Investing in currency involves buying the currency of one country and selling the currency of another country. This is done through the foreign exchange market or “foreign exchange”.
Forex trading is always done in pairs. To complete a transaction, one currency must be exchanged for another. For example, you can buy USD and sell GBP, or vice versa. While it is technically possible to trade a foreign currency traded on an exchange with another currency, it is more common to trade pre-determined pairs. Foreign currencies are usually categorized as follows:
- Major Pairings: This group includes the most commonly traded currencies. Commonly includes US Dollars (USD), Euros (EUR), Japanese Yen (JPY), and British Pounds (GBP).
- Minor Pairs: This group includes many of the currencies commonly traded in the Major Pairs category, with the exception of the US Dollar.
- Exotics: Usually there are pairings of high-traded and low-traded currencies. For example, the US dollar can be paired with the Hong Kong dollar (HKD) or the Singapore dollar (SGD).
- Region Pairing: In this category, currencies are paired based on region. So you can see that Asian or European currencies in the same region are being exchanged for each other.
Why Invest in Currencies
Forex trading seeks to take advantage of fluctuations in currency values. Same as stock trading. You can appreciate the value of the currency you buy and sell it for a profit. Your profit is related to the exchange rate, which is the ratio of the value of one currency to another.
When looking at pairings, you have to consider how they are arranged. For example, for the GBP USD investing pair, USD is the base currency and GBP is the quote currency. The exchange rate is used to calculate the amount that must be paid in the quoted currency to purchase the base currency. Whenever you buy a currency pair, you buy the base currency and sell the quote currency.
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Tips For Investing in Currencies
Consider talking to a financial advisor about investing in currencies. Finding a qualified financial advisor is not too hard. If you’re ready to find an advisor who can help you reach your financial goals. If buying and selling or GBP USD investing in the forex market seem too complicated, consider investing in exchange-traded funds.
These funds trade on stock exchanges like stocks but tend to have lower tax rates than other mutual funds. Foreign currency ETFs may also have a lower risk factor compared to trading foreign exchange through a broker as these funds are actively managed.
How To Invest in GBP USD?
The best place to start GBP USD investing would be Google Finance. You get access to two pairs:
- US Dollar vs British Pound Sterling;
- Euro vs British Pound Sterling.
Why Should Invest in GBP US Dollar?
You may want to GBP USD investing because you think the value of the pound sterling will rise relative to the US Dollar. Or maybe you think the opposite — that the pound sterling will fall in value.
Conclusion
Investing in currencies or GBP USD investing can be uncharted territory and it’s important to understand how they work. It is also helpful to have an overview of how stock market movements, geopolitical concerns and economic conditions in the country you plan to invest in will affect your foreign currency. The more you know, the more informed you can make your forex trading decisions.
Read Also: EUR USD Investing: Fundamentals of Binary Options & Forex Trading