Many aspects of foreign currency trading (forex) make it an excellent investment vehicle. It may be the best choice for active investors who are willing to devote a little time and effort to their business in exchange for making superior returns on their investment.
The following is a brief discussion of some of the advantages of forex:
Over two trillion dollars change hands every day in the forex markets, making it possible to enter and exit positions instantly. This is infinitely better than totally illiquid investments such as real estate or oil wells, which require days, weeks, or months to complete buying and selling transactions. It is even better than the most liquid stocks, which may trade a few million shares per day, or the most active commodities contracts, where a few hundred thousand shares per day are exceptionally high activity. Forex also trades 24 hours a day, five days a week, so a trader can enter or exit positions rapidly in response to world events without having to wait for a trading floor to open somewhere.
Forex traders can work from the quiet of their own homes if they choose and never be bothered with the hassles of managing employees or being managed by management above them. With a good online broker, traders don’t even have to make phone calls to live humans, except in the rare case of internet systems problems that require calling live trading desks.
Most forex brokers provide commission-free trading, which is an infinitely lower cost than even the most deeply discounted commodities or stockbrokers charge their clients. Compared to the thousands of dollars paid to real estate brokers, commission-free forex trading looks even better. But, of course, there is no free lunch. Forex brokers make their living by taking the opposite side of every trade and collecting the bid/ask spread for themselves. But the individual trader can minimize this cost by choosing only the best trades with the narrowest spreads to enter into.
Forex traders can begin with just a few hundred dollars, which can control up to 400 times as much capital in the market due to brokers' extreme leverage in forex. Of course, the greater the leverage a trader takes, the greater the risk of being wiped out by tiny random fluctuations in the market, so every trader should be aware of their risk tolerance and adjust their trading style and strategy accordingly.
Unlike the commodities markets, where hundreds of different contracts are available for trading, or the stock market, with tens of thousands of issues available, the vast majority of forex transactions occur in just seven major currencies. This means that a trader can quickly become an expert in a narrowly focused set of trading vehicles without poring over thousands of reports on different companies or crops every day.
This article begins to illuminate the advantages of forex as an investment vehicle. Liquidity, low transaction costs, simplicity of operation, low capital requirements, and a narrowly focused field of play all make learning more about this investment opportunity a worthwhile investment of time.