Today, the FOREX is estimated to conduct an average trade of 2- 2.5 trillion US dollars on a daily basis. Hundreds of traders sit at their desks, or talk on the phones, doing business across the world. But not all of them make profits. While the profits to be made are of a considerable amount, so can be the losses incurred. Secondly, anybody in a hurry to get rich may become a victim of an online scam. More importantly, laws regarding FOREX itself vary from one country to another. So, hence remains the question- Why trade in FOREX at all?
Why do people trade in FOREX?
High Liquidity- Liquidity refers to an asset’s ability to be bought or sold with ease, with minimum loss of value, and without a huge jump in the price. Which means that both the buyer and the seller should walk away with a good deal?
The FOREX deals with enormous amounts of money across the globe, and yet promises a trader considerable amount of freedom, the most important term being that traders can enter or exit the market when they choose. This especially is a good plus point to fall back on, when there is any bad news regarding any political activity, economic state etc of any country. Positions of any volume can be opened or closed at will in any market condition, with minimum risk and no daily trading limit. No other market in the world, with a high liquidity allows such flexibility.
High Leverage- The high leverage in the market means that the size of an initial deposit itself does not need to be a huge amount. A small margin deposit can generally control a larger contract value. Various stocks offer differing leverages such as 1:1, 2:1, or 15:1 in the case of futures transactions.
24 hour Market- Since the market networks countries all over the world, its 24 hour nature is important. One does not have to wait for the ‘opening bell’ to trade. Traders have the flexibility to trade during US, Asian or European trading hours which also means that they can set up their own trading schedules according to their convenience. Traders are also able to respond much better to breaking news all over the world with the assurance that portfolios are not affected by after hours earning reports or conference calls. In addition, traders also have the convenience of trading from their homes, or workplaces and choosing to work only a few hours a day if they wish.
Low Investments- While there are more than 40,000 stocks to choose from, start ups costs are quite low when compared with other investment schemes. Also, the transaction costs are comparatively lower. If a trader is new to the market, and wishes to test the waters before entering them, there are free demo accounts with many online FOREX firms, which would give a needed feel of the market. Moreover, breaking news and other services are also at hand in such accounts. “Mini” trading accounts with online FOREX sites are another option a starter can look, where the initial deposit would be of a very small amount and would also give the required look into trading.
Making Profits- Profit making is one of the main enticers of this market, enabling careful traders to make millions in a single day. Whether a trader is a buyer or a seller, there are always opportunities to make money in this market where it doesn’t matter which way the market itself is moving. More importantly, since the basic trade involves the buying and selling of currency, there is no place for biasness. Access is equal to all traders irrespective of their locations or portfolios. In spite of so many global players, no single entity is capable of controlling the market price for an extended period of time. Although banks across the world have tried dominating the market for as long a period as possible, overall attempts to manipulate market prices have gone down to some degree.
Nature of the Market- There is a sizeable number of banks, co operations and other organizations who trade in the FOREX on a daily basis, besides single individuals. This also means that there is a lack of organized exchanges serving as a central location. It is also important to remember that the basic conduct of deals, trade and retail FOREX are not under any kind of regulation or laws. However, some dealers such as commercial banks have regulations and are required to conduct activity within the same.
Analyzing the market from close quarters and also in a more objective manner helps a trader make informed decisions. The availability of breaking news in all corners of the globe, is an important tool for a trader. In addition, they also have first hand information about acquisitions and mergers, resignations of top employees, purchases, expansion plans, and other press releases even before the public is aware of the same. All these reasons make the market much more accessible in all ways; which is why probably the layman thinks about investing in the FOREX, which was once open only to banks, hedge funds and major currency dealers. Today it is an ever expanding network of opportunities.