Quite the confusion is afoot in the financial markets. Tighter regulation, rising inflation, energy sector disruptions, social unrest and wars have taken a toll on the world's economies. How come Forex, as a means of investment, has come up on top as a global trend in 2022? Against the backdrop of current events, the international broker’s expert team at OctaFX has gathered some answers.
The financial world is enduring some important shifts and shocks right now. This has been going on for at least two and a half years—since the start of the global coronavirus pandemic. Now—because of the monetary policies implemented by most national economies—inflation is spreading and raging on every continent like a virus. It leaves no country untouched. Ordinary people lose their savings, funds, and the purchasing power of their national currencies. Governments regulate as much as they can. But current circumstances, many of which are quite unprecedented in recent memory, led to policies restricting some financial markets. Among them—the Forex market. But the thing is that it is Forex investments that have gained traction recently, having become an international trend by now.
Now that we know where we are at, we can take a look back into the history of financial investments—specifically, how it pertains to the Foreign Exchange market.
The plain history of making investments
Making investments goes way back. Thousands of years ago, people of different tribes, villages, and regions found routes and means to exchange goods of all kinds: farm animals, precious metals and rocks, or domesticated wheat, to just name a few. Each of these ancient transactions and trades were investments—as capital, as trust in future trade relations, or often as a means of survival.
The Foreign Exchange market as a hub of making investments is almost as old—since at least the invention of the coin as an exchange currency, so at least around 600 B.C. It can be considered as a dynamic basket of foreign currencies and a network of exchanges. To put it even more bluntly, Forex represents the process of changing one currency into another. The Foreign Exchange market is decentralised by nature. Today, it exists completely online and utilises a vast variety of different countries, currencies, and commodities.
Making a huge leap into the present day, Forex experiences a significant global revival as a way of making investments. The age of quarantine, home office and lockdowns, mass lay-offs, and blunt economic uncertainty fueled by inflation forced many people into researching alternative approaches to generating additional or passive income online. Forex came out on top.
Why did this trend emerge now?
Many factors contributed to a heightened interest in Foreign Exchange. As we alluded to in the beginning, developments in geopolitics, the world economy, and the aftermath of the COVID-19 pandemic created a bundled sense of uncertainty in the financial markets. The E.U.’s compounded economy and its euro have significantly weakened. This ongoing process made it possible for the U.S. dollar to catch up to full equivalence, which has not been done since 2002, twenty years ago. This strong performance of the American currency made even retail raise their attention, looking for strong opportunities to engage. Where Forex has gained traction, other assets like stocks and real estate have weakened. The reason is, again, rising instability and insecurity in the respective markets. Less people choose to enter these for fear of miscalculation.
Commodities can be traded and invested in via Forex, as well. Whereas crucial ones like natural gas and crude oil have constantly risen in price. One of the aspects for crude oil to explode in value being the OPEC countries not yielding to the U.S.’ demands in significantly upping monthly production. Whereas natural gas was priced at 43.99 USD in June 2020 and went up to 483.23 USD in June 2022—an increase by 998.49 per cent. Only through Forex could one have taken advantage of a ten-fold, dramatic price movement like this.
Forex - among the best types of investment
Since investments can be legitimate sources of passive income, let us have a rundown of the most solid and relevant assets that can serve as investments - especially, as they relate to Foreign Exchange. Gold is a historically proven type of investment—a magnificent long-term hedge against inflation, it has a strong track record. The downside is probably its physicality: unlike with Forex, gold needs to be stored somewhere safe and robust. The more one has, the more storage and safety becomes an issue.
Much like gold, real estate is a heavy-duty path to making an investment. The advantage is security and relatively low price volatility. Also, the owner can rent their real estate, by which they generate passive income in a straightforward way. Forex does not cover these options but does have a significant advantage elsewhere, though. The initial investment doesn’t have to be as high as it usually needs to be, acting on the real estate market. With Forex, sums between 20 and 100 USD are usually sufficient to start participating in the Foreign Exchange market.
Cryptocurrencies have been the most recent addition to the financial markets. All thanks to bitcoin, which, despite the ongoing downtrend, did manage to convince many financial legacy institutions—and even governments—to become investors in the past two years. Since crypto is prominently present in the Forex domain, many of the advantages of both worlds merge. Crypto trading has benefited from Forex-inspired security measures like stop-loss orders and negative balance protection.
But there are high risks involved with cryptocurrencies in terms of investing. Individual crypto projects can say one thing but do another. As the Celsius network and its CEO, Alex Mashinsky, have painfully demonstrated this summer. Most clients of their financial service have most probably lost all their funds.
Things are a little bit different with the algorithmic stablecoin project Terra Luna, which allegedly imploded because of a grave, but unintended technical miscalculation of the development team. Instances like these are extremely rare in Forex, since the currencies and commodities traded there are historically reliable assets that are well-equipped against sudden defaults.
Saving accounts and cash savings have their merit in times of economic stability and thrive. But in the age of inflation, these options can become a bottomless pit in no time. Forex is much more mobile and flexible in that assets can be swiftly exchanged, whereas the other two more pragmatic options are more static in nature. Saving accounts, in particular, since the contract signed with the bank can have many sorts of disadvantageous clauses in case of wanting to close it prematurely.
Stocks have their upsides in a bull market, as well. Especially if you nailed an investment like, say, buying stocks in Amazon pre-2016. Stocks actually give an individual proportional ownership over a company - the more stocks in their possession, the more of the company belongs to them. As for now, though, the stock market is in a steep decline. It is hard to ascertain the midterm outlooks or how long the downtrend will continue. The dynamic nature of Forex, on the other hand, gives the investor many short-term options to modify their investment portfolio on the run.
The pressure of certain governments on the whole domain of private investment cannot be overlooked. Constant restrictions—like the Forex industry is experiencing at the moment—while at the same time government policies are lacking to adequately meet grave dangers like inflation, may all lead to people losing their income and savings.
It doesn’t have to be this way
How can someone break free from this vicious circle, take responsibility, and engage in a meaningful, productive and potentially very lucrative investment decision? Let us take Forex as an example again. A trustworthy and reliable broker is the first and foremost step. Any broker with at least a decade of experience in the financial markets (such as OctaFX, XM, eToro) is a solid pick. Attention has to be paid to the broker’s reviews and awards. All of that should be available to research online.
In terms of achieving financial goals, there could not be a time filled with more urgency than now. Taking the dire economic crises raging worldwide into consideration, the investment decisions one makes now could dramatically influence their future - for the better.