On average, it is estimated that an average amount of $5.3 trillion is traded each day through the forex market. This is a sizeable sum, and one that reflects the lure of currency trading as a flexible and liquid entity.
Far beyond being a lucrative activity, currency and forex trading is also a practice that is increasingly prevalent among small business-owners. In fact, there are various reasons why forex is important to SMEs and solo-entrepreneurs, particularly in a challenging and changeable economic climate.
In this article, we will look at three reasons why the forex market and currency trading are so important to small businesses.
Reinvest Existing Capital Into a Liquid Market
Small business-owners are increasingly likely to immerse themselves in currency trading at the most fundamental level, by actively investing capital in the forex market.
This is a popular endeavour, not least because it enables entrepreneurs to take existing capital that is sitting idle and reinvest this into a more liquid position that can generate short and long-term gains. The money generated can then be reinvested into various, strategic aspects of your venture, including sales and marketing.
The key is to learn the basic principles of forex trading uses independent resources such as this, while developing a keen sense of determinism that can drive informed trades.
Amend Prices in Relation to Currency Fluctuations
Not only this, but the value of your main currency has a direct impact on your costs and pricing strategy as an entrepreneur.
The British pound (GBP) has provided a prevalent example in recent times, ever since the UK voted to leave the EU. As the value of the GBP has plummeted and continued to trade within a narrow range, we have seen the cost of imports soar while the export market (which is relatively small and focused on services in the UK) becomes more competitive.
The reverse is true in instances when the value of currency rises, so businesses must tailor their core strategies and pricing to suit these conditions. This may mean incrementally increasing prices as currency depreciates, while potentially driving more generous promotions when the value increases.
Time Your International Expansion
At its core, the process of forex trading involves the buying and selling of currency as a derivative. Businesses are also required to do something similar when they expand into international markets, as they must use capital to buy overseas currencies and build separate sources of wealth.
Knowledge of forex trading can help with this, as it helps you understand real-time conversion rates and the underlying trends that will influence future price movements. This, in turn, will help you to develop a viable and cost-effective strategy while identifying the ideal time to purchase one currency with the help of another.
The same principle applies when you have an excess of foreign currency that needs to be converted back into the original currency. More specifically, an innate understanding of the forex market and its underlying laws will enable you to determine the best time to sell currency, as you look to retain this in an account until the moment finally arrives.