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Why Trade the FOREX?

My purpose for writing this article is to demonstrate to you the advantages of trading on the FOREX market.  However, there is one myth that I want to dispel before I go further.  The myth is that there is a difference between trading and investing.  To dispel that myth I quote from Al Thomas, President of Williamsburg Investment Company, who wrote “If It Doesn’t Go Up, Don’t Buy It”.  He said “Everyone who invests is a trader, only the time period is different.”  It is a lesson that I took seriously after taking a beating in the stock market in 2000.

So now, let’s compare features of currency trading to those of stock and commodity trading.

Liquidity - The FOREX market is the most liquid financial market in the world around 1.9 trillion dollars traded everyday. The commodities market trades around 440 billion dollars a day, and the US stock market trades around 200 billion dollars a day.  This ensures better trade execution and prevents market manipulation. It also ensures easily executable trading.

Trading Times – The FOREX market is open 24 hours a day (except weekends) which means that in the US it opens at 3:00 pm Sunday (EST) and closes Friday at 5:00 (EST), allowing active traders to choose the times they want to trade.  Commodities trading hours are all over the board depending on which commodity you are trading.  Including extended trading times US stocks can be traded from 8:30 am to 6:30 pm (ET) on weekdays.

Leverage – Depending on your FOREX account size, your leverage may be 100:1, although there are FOREX brokers that offer leverage of up to 400:1 (not that I would ever recommend that kind of leverage).  Leverage in the stock market can be as high as 4:1, and in the commodities market, leverage varies with the commodity traded but it can be quite high.  Because the commodity markets are not as liquid as the FOREX market, its leverage is inherently riskier.  Although I was never shut out of a commodity trade by the day limit, the fear was always in the back of my mind.

Trading costs – Transaction costs in the FOREX market is the difference between the buy and sell price of each currency pair.  There are no brokerage fees.  For both the stock and the commodity markets, there are transaction costs and brokerage fees.  Even when you use discount brokers, those fees add up.

Minimum investment – You can open a FOREX trading account for as little as $300.00.  It took $5,000 for me to open my futures trading account.

Focus – 85% of all trading transactions are made on 7 major currencies.  In the US stock market alone there are 40,000 stocks.  There are just over 200 commodity markets, although quite a few are so illiquid that they are not traded except by hedgers.  As you can see, the fewer number of instruments allows us to study each one more closely.

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An Overview Of Forex Trading

Forex, is an exchange that allows investors to trade national currencies through the foreign exchange. This is the worlds largest market for currency, based on the Dollar, anywhere between 1 – 2 TRILLION dollars are traded upon this market on a daily basis. This type of trade is typically performed online or on the telephone. By taking advantage of the world wide web, you are enabling yourself to make your investments in a reliable, easy, safe and fast way.

Some investors are able to enjoy returns of around thirty percent on a monthly basis, this takes a great deal of experience to gain this type of enormous return on your investment. The Forex market does not have one specific place of trade like many of the other markets do, for this reason alone is why most of the trade is performed by internet, fax, or telephone. In the beginning for currency trade was not all that popular, they were bringing in only about seventy billion dollars on a daily basis, with the invention of Forex, that number grew massively.

Of course, the currencies do not only deal with the American dollar, these currencies can be translated to over 5,000 currency institutions world wide, which include, commercial companies, large brokers, international banks, and government banks. Many major countries have forex trading centers such as, Frankfurt, London, New York, Paris, Hong Kong, Tokyo, and Bombay to name a few.

When trading online there are many benefits such as, the ability to trade or track your investments at anytime day or night, from anywhere within the world that offers an internet connection. Another added benefit, is that some online exchange sites allow you to start with a small investment, known as a mini account, some with as little as two-hundred dollars. With online trading, the trade is instant. When you trade offline you have to deal with paperwork, with online trading there is no paper work involved.

The world of the internet, has allow us to do many things with just a click of a button, where else can you bank, trade, talk to your family and friends, research your investments and earn money all at the same time? Make the internet work in your best interest by implementing online trading into your portfolio. There’s a whole world of money waiting for you to earn with your online investments, and it’s all available at the click of your mouse button.

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