Why Trade In The Foreign Exchange?
By Ultimate Trading
What Advantages Does Trading In The Foreign Exchange Have?
Many traders are overwhelmed by the size and intricacy of the
exchange market, and yet a knowledgeable trader has the
potential to realize profits in this market that is unmatched by any
other. There are a number of aspects of the foreign exchange market
that set it apart from any other market that give it this potential.
First off, foreign exchange is a 24-hour market. You dont need to
wait for the opening bell here. Anytime a trader wants to take
advantage of positive market conditions, they can. This 24 hour
timeline of foreign exchange also means there is very little of the
gaping that can occur in other exchanges. Trends, and trading,
progress more smoothly. The foreign exchange market is also the most
liquid market in the world. That means that a trader can enter or
exit the market whenever they want, and there is little chance of
being caught in a position you cant exit.
Another aspect of the foreign exchange market that creates a
favourable trading environment is its high leverage. Leverage ratios
of up to 400 are normal in this market, compared to a leverage ratio
of 2 (50% margin requirement) in the equity markets. Of course, this
also increases the potential downside of foreign exchange trading,
something which should always been taken into account when
considering a trade. To offset this there is the foreign exchange
low transaction cost. The retail transaction cost (the bid/ask
spread) is actually less than 0.1% (10 pips) under normal market
conditions. At larger dealers, the spread could even be less than 5
Also consider that at foreign exchange its always a bull market. A
trade in the foreign exchange market means selling or buying one
currency against another. In essence, a bull market or a bear market
for a currency is defined in terms of its outlook for value against
other currencies. If the outlook is positive, you get a bull market
for that currency, where a trader profits by buying the first
currency against other currency. However, if the outlook is
negative, you have a bull market for other currencies and the trader
profits in the other direction. Whatever way you look at it, there
is always a bull market trading opportunity somewhere.
The foreign exchange market is so large and has so many participants
that no single trader, even a central bank, can control the market
price for an extended period of time. Even when the central banks of
large countries try to intervene in the market, they find that their
efforts have little effect on market prices. And what they do have
is short-lived. Foreign exchange is so large and liquid that no one
can corner the market.
Just as no one can corner the market, no one can regulate it either.
The daily operations of retail foreign exchange brokerages are not
regulated under any laws or regulations specific to the foreign
exchange market. In fact, many of these types of establishments in
the United States do not even report to the Internal Revenue
Service, though they are regulated under the banking laws of their
respective countries. However, the currency futures and options that
are actually traded on exchanges like Chicago Mercantile Exchange (CME)
are under the regulation in the same manner that other
exchange-traded derivatives are regulated.
These characteristics combine to create a market environment that
always has a good trading opportunity somewhere, at any time of the
day. It gives us a market that is remarkable liquid, with high
margins and low fees, and it is a market that has very little
governmental intervention of any kind. By this time it should be
clear to you that it is worth investing your time and energy to get
to know the
exchange, so that you can take advantage of this highly
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