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FOREX Trading Facts
Why trade currencies?
Simply said, no other trading instrument comes even closely
to the forex market when it comes to liquidity
and 24hr market environment. *
* Please read the risk disclaimer at the bottom of the page.
Advantages of trading Forex
A 24-hour market - A trader may take advantage of market
conditions at any time. There is no waiting for the opening bell.
High liquidity - The Forex market has an average trading volume of over
$1.5 trillion per day. It is the most liquid market in the world. This means
that a trader can enter or exit the market at will in almost any market
condition with minimal execution risk.
Low
transaction cost - The retail transaction cost (the bid/ask spread) is
typically less than 0.1% (10 pips or points) under normal market conditions.
At larger dealers, the spread could be 2-4 pips.
Uncorrelated
to the stock market - A trade in the Forex market involves selling or
buying one currency against another. There is limited correlation between
the foreign currency market and the stock market.
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A bull market or a bear market for a currency is defined in terms of the outlook for its relative value against other currencies.
If the outlook is positive, we have a bull market in which a trader may attempt to profit by buying that currency against other currencies. Please keep in mind that Forex trading involves a substantial risk of loss.
Conversely, if the outlook is pessimistic, we have a bear market for that currency and traders may attempt to profit by selling the currency against other currencies. Please keep in mind that Forex trading involves a substantial risk of loss.
In either case, the trader should be able to enter long or short with equal facility.
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Inter-bank
market - The backbone of the Forex market consists of a global network
of dealers. They are mainly major commercial banks that communicate and
trade with one another and with their clients through electronic networks
and telephones. There are no organized exchanges to serve as a central
location to facilitate transactions the way the New York Stock Exchange
serves the equity markets. The Forex market operates in a manner similar to
the way the NASDAQ market in the United States operates; thus it is also
referred to as an over the counter (OTC) market.
No
one can corner the market - The Forex market is so vast and has so many
participants that no single entity, not even a central bank, can control the
market price for an extended period of time. As the market has grown even
central bank interventions have become increasingly ineffectual and short
lived as a tool for controlling the value of a particular currency.
Speed
- Due to the speed with which the currency markets
are moving, it is possible to close a trade successfully as soon as you want
to, except in extraodinarily
volatile market conditions.
Trading
from the comfort of your home
- Save on the cost of hiring an office!
You can trade Forex any time (from Monday to Friday) and any place. All you
need is a computer and internet connection. You may even take your laptop
with you on holiday and trade while away from home.
Working
as a Day-trader - By closing all open positions every day, you may go to
sleep peacefully with the knowledge that your money is safe. There will be
no nasty surprises when you get up in the morning.
Closed
over a weekend - The markets are closed on a Saturday and Sunday, making
it impossible to work (trade) on a weekend. You are forced to relax!
>>> Click here to learn more about the risks involved in trading Forex
Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.