The forex market is the largest capital market in the world with a daily turnover volume of over $3 trillion US dollars. Currency trading is thus seen by many as a viable alternative to traditional investment opportunities like the equity markets. But what precisely makes forex trading a force to reckon with in the world of financial investments?
If you have ever traveled abroad, you know first hand the potential of forex trading. Your dollar will get you much more when you exchange it to the local currency than when you use it in your home country. For instance, if you’re holding on to a large lot of a particular currency, it wouldn’t be worth any value when you go to another country unless you’re able to trade it for that country’s currency.
Fx trading therefore enables international investments and trade. While historically the forex market was limited to central banks, large multinational banks and major investment companies, the advances in technologies on the internet helped in making forex trading transactions far less difficult. This factor, plus the fact that the currency market is largely deregulated have opened up investment opportunities for smaller investment groups and even individual traders worldwide.
Foreign exchange market characteristics. As mentioned earlier the currency market is huge. It is partly because of this enormity in market size that forex is not centrally controlled in the traditional sense. Unlike the equity markets where there are stock exchanges that, in a sense, direct traffic, no such clearing structures are in place exerting control on the global forex. A forex managed account is a great investment tool if you would like to engage in the currency market.
Because of these traits of the foreign exchange market it’s relatively open to speculation and, to a certain extent, abuse. Currency speculators, usually from large hedge funds that have significant stakes in forex, are seen to be both a boon and a bane to the market. Retail currency trading is oftentimes blamed for money laundering activities of criminal elements.
Be that as it may, this mostly free and unregulated characteristic of the foreign exchange market has attracted many investors from all walks of life looking for better investment opportunities outside of stocks, bonds and properties. With forex, small individual investors can trade on equal footing against large banks and holding firms. This is definitely something very unique to the foreign exchange market.
Forex vs. other investments. Compared to the stock market and other investment instruments, fx trading allows for investments to be quite liquid, meaning capital can be taken off the market in a relatively short timeframe. For instance, in spot trades are 2-day direct exchange cash transactions. However, short-term trading whether in forex or in equities is not for the uninitiated.
Investment opportunities in forex require very little capital, which is typically an advantage for novice investors. Only with currency trading can you start a forex trading account for as small as $250, for example in the case of mini accounts. This low capital requirement is afforded by leverage, that may work either for or against a forex investor. All of these aspects of the foreign exchange market as a whole make it such an interesting and dynamic investment alternative. You might also like the idea of forex auto trading service.