You’ve likely heard of the Foreign Currency Exchange Market, but do you know what it’s all about and how to participate in it? Some people do, but many don’t know that the world’s currencies are traded almost every day of the week around the clock. There is a lot of money changing hands across the globe by simply predicting whether one currency goes up or down versus another. The Foreign Currency Exchange Market is termed The Forex, which is an abbreviation that is easier to say.
Can I Participate in the Forex?
Just like the stock markets we are all more accustomed to, individuals can also participate in the Forex. Individual investors couldn’t always participate in the Forex, but now they can. Since the Forex is an extremely liquid market, everyone is afforded the opportunity to buy in and sell currency positions without having to worry if there are enough trades to buy or sell one’s position. There are some investment markets which naturally have very little liquidity or volume and thus an investor can get “stuck” in positions longer than they would like or they may find hindrances even getting a position they want. With Forex Trades, you can be assured of filling your orders without the worry of liquidity. Just remember that as an individual, you will be in the market trading with large banks, other financial markets, companies, currency speculators, other individuals and governments…all looking to make money on currency fluctuations.
How is the Forex Different from other Markets?
Little to No Insider Information: One of the major differences the Forex exhibits versus other financial markets is the fact that there is little to no insider information involved with the Forex. Major financial news such as trade deficits, GDP, growth, inflation and other figures are released publicly to everyone at the same time. The problem other financial markets often have is people illegally leaking information from companies with select people having an advantage when they go to trade the stock or commodity before others find out about the news. The Forex Market doesn’t have the level of risk in that regard that some markets have. However, with that being said, large banks can have an advantage because they can monitor their customers’ orders, but they work with difference spreads anyway since they do such a large volume. The spread between the bid and the ask is always more than it is when larger institutions are buying or selling currencies. It stands to reason that those who place larger orders are going to receive bigger discounts in the form of a tighter bid and ask.
Severely Leveraged Trading: Another difference between the Forex or FX Market and other financial markets is the possibility of severely leveraged trading, thus lowering the initial investment required. Some Forex Brokers can offer 300:1 or even 400:1, which means if you only have $1,000 to invest, you could open up a $400,000 position. This lower level of investment allows more people to trade in the Forex and decreases initial costs to enter the market.
Low to No Commissions: Forex Trading also offers little to no commissions, unlike equity trading. Not only do most Forex Brokers not charge a commission at all, but the spreads are tighter than they are in the equity markets. This means more of your money stays in your pocket instead of the Brokers’.
Easier Trading: Since the majority of Forex Trades take place among the top 7 currencies, you don’t have to learn about as many investments as you would with the stock market. This makes it easier to be specialized.
Forex trading has many advantages compared to other financial markets. However, as with any investment, you will want to do your homework to make sure that Forex is right for you. As far as the Forex being less complicated than other equity markets, less costly as far as commissions and entry costs, more liquid, more leverage available and little to no insider information to deal with, it appears it is hard to go wrong with Forex Trading. If you stick to your system and don’t get distracted, the sky is the only limit in the Forex Market.