Posted by admin | Posted in Different Investment Stategies | Posted on 04-04-2012
What is Forex?
Forex is short for foreign exchange, and refers to the market created by the trading of international currency.
As the relative value of a nation’s currency rises and falls in response to socioeconomic events such as international policy, inflation, and geopolitical stability a profit generating opportunity is created.
|It is a worldwide market for buying and selling foreign currencies.
The major currencies that are traded include the U.S. Dollar (USD), Euro, British Pound Canadian Dollar, Australian Dollar, Japanese Yen, and the Swiss Franc.
The purpose of this article is not to go into the details of how Forex works, but to compare the benefits of trading in the Forex market versus trading the Equity (American stocks) or Futures markets (Commodities).
The Forex market is the largest market in the world with over 2 trillion dollars traded every day. This compares to the 200 billion dollars traded daily in the Equity and Futures market each.
On a normal day more that 2 trillion dollars are been trader in forex compared to 200 billion dollars traded daily on stocks or Commodity markets, which makes the forex market benefits from fairer prices, price stability, and better trade execution.
The Forex market opens on Sunday afternoon and remains open until it closes on Friday afternoon. The Equity and Futures markets are only open Monday through Friday 8:30 a.m. to 5:00 p.m. Eastern Standard Time.
This gives Forex traders the opportunity to trade around their personal schedule. Also, liquidity in the Equity and Futures markets are reduced after regular trading hours.
You pay a spread on the currency pair you are trading and costs are very low, especially when compared to the other markets.
In the Equity and Futures markets your average margin is 4:1.
This means that you can control $10,000 worth of currency with only a 50-dollar margin.
There are many factors that goes through the mind of a trader and he or she need to consider when deciding on which market you want to spend your time and money.
In the Equity market, short selling is very risky and comes with limitations.
There are seven major currencies yielding four major currency pairs that most Forex investors concentrate on. Whereas in the Equity market, investors have over 40,000 stocks to choose from when contemplating where to invest their money.
Many institutions participate and trade the forex markets successfully, including national banks, hedge funds, corporations, and individuals.
The sky will be your only limit is you give yourself enough time to learn all the necessary skills needed to become a profitable forex trader.
I for one highly recommend trading forex as compared to trading stocks and future markets, but it all depends on every individual’s preference, as the forex currency market itself represents trillions of dollars, and due to its nature, there can be no cornering or monopoly created.