Forex, or the foreign exchange market, is the largest financial market in the world, with well over $5 trillion in daily volume. This is a market that never sleeps. Every weekday, morning or night, millions of investors all over the world are making money trading currencies.For the average investor, Forex can seem daunting. Known for its obscure terms, wide swings, and use of leverage, many traders steer clear of Forex, preferring the calmer waters of stocks. But Forex trading has a lot to offer.
“Break out of your trading mold and try Forex”, says Christopher Baines from NSBroker. “The market is dynamic, exciting, and offers a wealth of opportunities for investors.”
If you are on the fence about trading Forex, consider these five reasons why you should trade Forex.
#1. Operates 24 hours a day, 5 days a week.
No matter where you are or when you sleep, there is always a trade to be made. Geography is no impediment to involvement, as a major exchange is always open. Action-oriented investors like scalpers or swing traders can always find an opportunity, no matter where they are, day or night.
#2. Fairly easy to get started
Depending on where you look, most websites will recommend that you start with $1000 when entering into Forex. Many brokers require a minimum of around $300, complicated by leverage requirements (more on this later). Still, the capital requirements are relatively low to get started.
#3. Trading on margin can really enhance your gains (and loses)
Like it or not, margin will supercharge your trading plan. Margin trading means that you get to borrow money for trading. Common ratios include 50:1, 100:1, and 200:1. For example, a trade of $10,000 at 100:1 means a trader need only have 1% cash in the account, or $100. Those who can trade Forex successfully find that margin is a tremendously powerful tool.
#4. Opportunities for diversification
Face it, the world runs on currency. What better way to invest in entire countries or geographic regions than purchasing, say, the Swiss Franc (CHF) or the Japanese Yen (JPY)? Moving capital into different currencies is a time-tested way of hedging or investing in a booming economy.
#5. Access to emerging markets
Sometimes, successful investing requires finding untapped opportunities. Emerging markets can represent such opportunities. While the top 10 currency pairs have some combination of the United States Dollar (USD) or the Great British Pound (GBP), there are over a hundred emerging or exotic currency pairs one can choose from. Want to trade Czech koruna (CZK) because you think the Czech Republic’s economy will take a turn for the worst in the coming years? You can.
A foray into Forex will expand your trading know-how, provide a tool for diversification, and could open the door for increased profits. While somewhat complicated for new or inexperienced traders, an appropriate plan of attack can have you trading in six months or less.