The foreign exchange market is the largest capital market in the world with a daily turnover volume of more than $3 trillion US dollars. Forex trading is thus seen by many as a viable alternative to traditional investment opportunities like the equity markets. But what exactly makes currency trading a force to reckon with in the world of financial investments?
If you have ever traveled to another country, you know first hand the potential of forex trading. Your dollar can get you so much more when you exchange it to the local currency than when you use it in your home country. For that matter, if you are holding on to a large lot of a certain currency, it would not be worth any value when you go to another country unless you are able to trade it for that country’s currency.
Forex trading therefore enables international investments and trade. While historically the foreign exchange market was restricted to central banks, large multinational banks and major investment companies, the advances in technologies on the Internet helped in making foreign exchange transactions so much easier. This factor, plus the fact that the forex market is largely deregulated have opened up investment opportunities for smaller investment groups and even individual traders worldwide.
Forex market characteristics. As mentioned earlier the foreign exchange 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.
Because of these traits of the forex market it is 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 forex trading is sometimes 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 certainly something very unique to the forex market.
Forex vs. other investments. Compared to the stock market and other investment instruments, forex trading allows for investments to be quite liquid, meaning capital can be taken off the market in a relatively short timeframe. For example, 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 almost always a plus factor for novice investors. Only with forex trading can you start an account for as small as $250, such as in the case of mini accounts. This low capital requirement is afforded by leverage, which can work either for or against a forex investor. All of these aspects of the forex market taken as a whole make it such an interesting and dynamic investment alternative.
For additional resources on forex trading and other investment opportunities, visit our exclusive knowledge center on forex investments.
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