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The Foreign Exchange (Forex) is the trading
of one currency for another. The Forex market (FX) is the largest
financial market in the world. It is estimated that over 1.5 trillion
in U.S. dollar value is traded daily worldwide. Approximately
5,000 banks, both central and private participate in the FX market
worldwide. Other participants include Hedgers (corporations who
play both sides of the market to protect their selling or buying
price of products while the products are traveling from one country
to another), and speculators who trade to earn a profit.
The Forex market has been traded publicly since the time of Elvis (1971 to be precise).
The Forex market is essential to the global
economy, and it was once the exclusive domain of central banks,
and the largest commercial and investment firms. In 1997 it was
deregulated, which opened the doors for money managers, registered
dealers, and speculators. 95% of speculators lose their full accounts
in less than 6 months. Successful forex trading is very hard to
learn and unless you are committed to the full time learning curve
of 1-2 years it should be avoided and left to professional money
managers.
Compared to trading stocks, bonds, or commodity futures, the FX
market has some huge advantages:
- FX trading is performed electronically 24 hours per day between
networks of banks. It is not bound to a specific trading floor
such as the New York Stock Exchange or the Chicago Mercantile
Exchange.
- Because the Forex market is not perfectly correlated with
the stock market, or days when individual stocks or mutual funds
decrease in value, a Forex fund can continue can continue to
grow, thus providing you with exceptional diversification.
- FX trading is much larger and more liquid, which means faster
and better order execution. It is so large in fact that all
the bond markets, stock markets, commodities and futures markets
worldwide combined would have to operate for a period of three
months to produce the volume in dollars traded on the Forex
in only one day.
- Equal opportunities in up and down markets.
- Best market for trading with a purely technical approach because
of the massive liquidity.*
- Best trending market in the world.*
- Greater leverage up to 100 to 1. Without proper risk management,
this high degree of leverage can lead to large losses as well as gains.
- The FX market has no expiring contracts, forward exposure,
or clearing fees. The FCM and RB are compensated for their services through the spread between the bid/ask prices.
- Orders are executed rapidly.
- For the first time in his trading history, Warren Buffet has
entered the currency market (He started in 2002, and recently
has put over 1 billion USD more in). Since that is where the
smart money is going, isn’t it worth taking a look at?
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