Are you someone who is new to trading and in search of an active, potentially profitable, exciting market? Or maybe you’re been around a while and have experience with stocks, options, and a few other areas and feel the need for a change of scenery. Whichever one of those categories you are in, forex trading could make an ideal new path for your enthusiasm to earn a profit in the global marketplace. Once you decide to trade forex (foreign-exchange currencies), you’ll find out why many part-time, full-time, and occasional traders make it their exclusive niche.
What are the unique advantages of forex? For starters, the liquidity is massive. You’ll never have to search for a second side to any transaction. Plus, it’s a vast, global market that operates around the clock every business day. And once you get a little experience under your belt, you can even deal in forex options. Finally, because foreign exchange markets came of age in the tech era, transaction speeds and accuracy are second to none. It’s clear that there are plenty of reasons, so take a look at the following short summaries about each one.
The international currency markets are huge and provide virtually infinite liquidity for anyone looking to buy or sell at any hour of the day. Unlike stock and bond markets, where it’s sometimes hard to find a buyer or seller to complete your deal, there’s no such problem in FX. An added bonus of a highly liquid arena is that buy-sell spreads tend to be very low. That means you’ll usually experience very little difference in price no matter what end of a deal you’re on. The main benefit for new account holders is that there’s no waiting once you decide to sell, which is a common problem in bond and commodities situations.
A Vast, Worldwide Marketplace
If you’ve ever been involved with the Dow, or bought and sold blue chip stocks, it’s obvious that the day to day choices are limited. For some of the larger corporations, prices seldom move very much, if at all. But that typical dilemma in the stock and bond markets is nowhere to be found in FX. The foreign currency universe is vast and encompasses trillions of dollars’ worth of value at any given second. You can trade pairs from all over the world with any competent broker.
Waiting for the opening bell and hurrying to get deals done before the afternoon closing is standard hassle for traditional exchanges that open around 9 a.m. and shut their doors at 4 p.m. Times vary depending on the exchange and the nation, but you get the picture. They’re only open during what used to be called bankers’ hours. Anyone who takes up FX as an avocation won’t have to worry about morning or evening bells because the international currency trading exchanges are 24-hour operations during the business week. They do close on the weekend, but you’ll be happy to take a break from all that round the clock action by Friday evening.
Options and Carry Trades
One of the great things about forex is that it’s ideal for everyone, from new to highly experienced people. So, after several months, when you want to venture into more complex scenarios, you can trade FX options and take part in carry-trade arbitrage. Don’t let the terminology put you off. Both are within your reach after you do some regular trading for a few months. Options in foreign exchange work the same as they do in the stock market. You use leverage to buy the right to purchase the currency pair, rather than buying the pair itself.
And with carry-trades, you have the power to borrow a low interest currency and use the fund to purchase a high interest one. Leverage makes it a potentially profitable arrangement, akin to borrowing $1,000, for example, from Bank ABC at 2 percent interest and investing it at Bank XYZ in an instrument that pays 4 percent. You’re automatically making a profit, less fees and commissions, of course. Carry-trades are one of the most attractive ways of participating in the FX marketplace.
Long and Short Transactions
Unlike traditional stock brokerage accounts, FX participants can go long or short any time they wish, without having to set up a margin account or wait for approval to do a short trade. And with fast transaction times, small spreads, and unlimited liquidity, everyone in FX has the chance to speculate on rising or falling prices. In fact, going short on an anticipated currency price decline is just as easy as going long.