The Forex market is a unique opportunity for making money for many different reasons. It has been said to be the nearest thing to pure competition that can exist in the real world. There is no serious insider trading and even the international banks do not succeed in their attempts to manipulate it. So it is a very open market for the small time trader to enter.
But what exactly makes it so special? Why is the small time trader so much more likely to succeed in the foreign exchange market than in other speculative markets such as stock trading?
1. Transaction Volume
It is hard to believe how much money is traded every day on the Forex market. It amounts to almost $4 trillion, according to the Bank For International Settlements December 2007 survey. London is the biggest trading center but the US dollar is the most traded currency.
2. Liquidity
Liquidity is a measure of how easy it is to convert a commodity to cash. Currencies are already cash, so the liquidity is very high and this means that you can easily have your trades matched in the Forex market.
3. Global
Currency trading takes place all over the world. Sure it is affected by events in the major financial powers but the effects balance out. Any time that one currency suffers, another increases in value.
This is very different from the stock exchange where it is quite possible that every company’s stock will increase or decrease in value at the same time. Currencies do not have absolute value, so if one currency‘s value falls, another is bound to rise. Forex traders are not tied to their own national currency so they can get out of the falling currency and invest in the rising currency at any time.
4. A 24/5 market
The forex market is a worldwide market open for trading 24 hours a day during the business week Monday thru Friday. In fact it opens Sunday night in most time zones which is Monday morning in Australia and New Zealand. So you can trade any time of the day or night. This makes it great for people who have a day job. You can schedule your forex trading around your other commitments.
5. Massive Leverage
Leverage is your ability to control large amounts of trading with minimal investment. The way this works in forex trading is that you invest a small amount in a trading account with a broker and this allows you to control a large sum, often 100 times your commitment. Your broker lends you the rest to cover your trade.
Generally forex brokers will offer higher leverage than stock options and futures brokers. This is because of the liquidity and relative value of the currency market. With higher leverage you have the chance of bigger profits. However you should not forget that a losing trade in the forex market can have a big effect too.
Thanks To : Currency Trading Strategies What is Forex Buy Euro
