Top Reasons to Trade in the Forex Market
The economic situation in the entire world and the Global Economic Crisis whose effects we all feel even today have left many people rushing to find other investment and/or trading options than the stock exchange. The main issue has been the security of the trading assets. Still, the Forex trading market remains significantly less popular than the rest of the trading options, such as futures or commodities.
First of all, let us see what Forex is?
Foreign Exchange (Forex) Market is a market in which different currencies are traded by all the investors involved. It is definitely the largest market in the world, with close to $5 trillion of average daily turnover. This market operates on many levels and is not centralized on a single place, like the stock market. Instead, it is decentralized and, with the advance of the Internet, it has an increased spread around the globe and everyone can easily participate, even from their homes. [Source: Investopedia.com]
This fact, along with the fact that this is the most liquid market, offers many possibilities to any investor who wishes to participate. No matter whether you are an experienced trader or just a beginner, give Forex trading a try for the following reasons:
The availability of the market
The Forex trading markets are open 24 hours a day, except on weekends. Since the trade is not focused on one geographical place (and, thus, in a single time zone), trading is available at all times. If a trader wishes to trade from Paris, during the night, he or she can catch the, at the time, open market in Tokyo or the closing of the U.S West Coast market. This way, trade can be conducted at any time.
This is very useful if someone wants to do trading and still have a regular 9-5 job. It allows trading even during the night. Those who wish to trade as their full-time job will find that this availability of the market allows for quicker responses and more relaxed time for conducting business.
The liquidity of the market
As was already mentioned in the beginning of the article, the daily turnover on the Forex market averages about $5 billion, making this the biggest market of them all. Also, the need to exchange currencies is great, so there will always be people who trade, making it the most liquid market, as well. [Source: Risk.net]
This all means that there will always be enough money for anyone who wishes to trade and anyone trading will never need to fear whether the order will be executed, like traders do on the stock market. Also, this means that no participant in trading will be able to fully control the market.
The leverage available
Such a great liquidity of the market has one other benefit. Since the trading is so secure and there is money for everybody (speaking in laymen terms, of course), the traders can enjoy a much greater amount of leverage, allowing them to work with very large amounts of money, while supplying only a part of that money from their own pocket. Usually, the broker firms will allow you to trade up to 100 times the invested value.
So, in reality, this means that you can invest $1000 with a broker firm and then be allowed to trade with $100,000. Therefore, if there are fluctuations on the market and there is a gain or a loss, the amounts earned or lost are greater, so there is greater excitement when dealing with trades. Once the leverage is returned, both you and the broker firm will have made the money, if the currency has been sold at a profit. On the other hand, if the currency is sold at a loss, you will have lost only a part of the money that you have invested. You can also read this article for more information about the leverage use in Forex trading.
The profitability of the market
This is one of the biggest advantages of the Forex trading: a trader can make a profit regardless of the markets' profitability. No matter whether the market is falling or rising, there will always be a way to make a profit, simply because the transactions can move both ways.
So, let us say that the Euro is about to depreciate comparing to the US Dollar. If you currently have holdings in Euro, you would be advised to sell these and buy US Dollars at the same time. Later, after it depreciates, you can buy it again and wait for its value to rise. Also, if the Euro is about to appreciate comparing to the USD, you buy it before it does and sell it after it appreciates. Of course, this is a bit more complicated and requires following the trends, but it is not something that is beyond the grasp of an ordinary person.
The possibility to trade from anywhere
The Forex market allows its participants to trade from anywhere. As was already said, you can conduct trade at anytime, both during the day and during the night. Aside from having no temporal obstructions, this kind of trading can be conducted from literally anywhere. This market is considered to be an OTC (Over-the-counter) market and everything is done electronically, from all over the world.
This means that you can trade from your home at any time, or you can go to the beach, bring your laptop and enjoy a cold beer while trading. All that is required is a connection to the Internet. With the rise of the smartphones, it is now even possible to trade from your pocket. So you can make this your part-time job that can be conducted on the go.
While this is only grazing the top of the grass on the hill that is the Forex exchange, these truly are the advantages of trading in this market. The information provided here is given to you in laymen terms, of course. A serious commitment to the Forex trade would require a lot more research and information which you are encouraged to do. Also, you can always consult a broker firm which offers Forex trading services and get more acquainted with what they have to offer.