Forex trading describes the exchange of currencies on global markets – by buying one currency while selling another, a trader can make a substantial profit. Forex markets are very liquid and are active 24 hours a day, allowing you to get returns from the excess cash in your business while retaining access to it when you need it. Forex trading also lets you hedge against currency changes that can be detrimental to your business.
Generate outsize profits
Returns currently on offer on money in current accounts are minimal. If your business has spare cash that is not needed for business operations or that is earmarked for use within the business in the near future, foreign exchange trading is an attractive alternative to very low returns.
Trading currencies allows you to take advantage of market movements on an almost instantaneous basis. Because forex markets are so fast moving, you can generate profits at literally any time of the day, and over a short period of time. So, while you always have access to your cash, your cash is now generating a profit.
The power of leverage
One of the distinguishing factors of forex trading is the fact that the profits you generate from a trade can be disproportionate to the cash amount you invest – but so could the losses. A broker could allow you to trade with a very high leverage, so that to trade £100,000 in currency, you only need to post £1,000 in margin. If the trade goes in your favour, the profits you get are very high.
Though leverage can lead to large losses, making an effort to understand Forex Trading by, for example, attending a course, can minimise the chances of significant losses while maximising the probability of large gains via margin trading.
Hedge your exposure to currency markets
Many businesses operate across borders: it could be that your customers are in a different country, or the suppliers of the goods and services that you depend on are located abroad. It is common for there to be a time lag between when the goods or inputs you are using to make a product are paid for, and when your end customer pays for the products you deliver.
By purchasing currency contracts, you can make sure that your business does not lose out if the value of currencies fluctuates. For example, you could arrange to purchase the currency in which your inputs are denominated in advance, and a fluctuation won’t cause you to pay unexpectedly more for the cost of production.
Don’t leave your cash in the bank
It is not uncommon for businesses to have spare cash, but it is typically left in accounts where there are extremely low or no returns. Forex trading can benefit your business by making your cash work for you. Instead of a 0% annual return, you can use sophisticated forex trading techniques and an appropriate level of leverage to earn substantial returns and boost your cash reserves.