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The Complete Guide to Yen Trading

The Complete Guide to Yen Trading

Are you interested in learning more about Yen Trading? Before you get started on your mission to learn all there is to know about trading Yen, it is important to remember that when you are getting started trading any commodity, you need to approach it carefully and slowly. Investing a significant amount of money in any market can prove to be risky so be sure that you only use money that isn’t earmarked for paying your bills.

Understanding What Yen Trading Is

The trade of foreign currency, also known as the Foreign Exchange Market (Forex trading), is a very unique form of trading – with the Japanese trading market being the most popular in traded currencies. The idea behind foreign currency trading is to purchase a currency that currently has a high interest rate and sell it once the interest rate drops – the different between the interest rates will be your profit. For a careful trader who has done a fair amount of research, trading in currency can prove to be a very lucrative venture.

For many years Japan carried a zero percent interest rate; when the interest rate on the Yen did go up, it went up a small percentage of a point which, despite being an increase from zero, is still significantly lower when compared to the interest rates held by other countries which could be as high as nine percent. This makes trading of the Japanese Yen a very attractive option for those in the Forex market.

To better understand it, let us take the US Dollar and the Japanese Yen as our examples; as interest rates change on a daily basis, let us create imaginary interest rates of 3.7% for the US Dollar and 0.5% for the Japanese Yen. Remember that these are fabricated examples and should not be used to make your own Yen trading determination.

If a currency buyer has a significant amount of Japanese Yen to trade with its 0.5% interest rate and purchases the US Dollars with their much higher interest rate of 3.7%, the profit seen by the buyer will be 3.2% – in other words, the difference in the interest rate. Before you get into your head that is your quick method of making a huge fortune without much in the way of effort, keep in mind that there are several fees that could be charged by your broker. Even an online brokerage website, well known for its lower trading fees, will charge a fee that could make a significant dent on your potential profits.

Find out if your broker, online or brick and mortar, is going to charge you a flat fee or take a percentage of your profit as their payment for brokering the Yen trading deal for you. Be certain that you carefully read any fine print on the contract that you sign with them and try to understand the impact that their fees will have on your trading. It makes little sense to go with a brokerage firm that will be taking a huge percentage of your profits – either via flat fees or variable interest rates. For example, if you are trading on a very low scale ($1000, for example), a flat fee of $100 is a significant amount of money for you to be forking over with each transaction. Think carefully about the amount of money that you can afford to invest into your Yen Trading venture.

To help maximize the potential profits on your Yen Trading venture consider grouping together several friends and family members who can help to bump up the amount of money that you are going to invest in your trade. If you are investing over $10,000 then the flat fee of $100 seems a lot less significant.

If, at any point, you feel uncomfortable with your brokerage firm, whether online or in a face-to-face situation, you should trust your instincts and back out. All too many people and businesses have lost a significant amount of money with their dealings with unscrupulous brokers. This is why it is absolutely vital for you to carefully research and verify the credentials of any brokerage company that you are considering doing dealings with. Don’t forget that the Better Business Bureau is a good source for information related to brokers – as is the Federal Trade Commission.

Photo courtesy of Ivan Walsh.

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