Forex or FX stands for foreign exchange, which is the exchange of one currency for another. The forex market is the largest traded market in the world, with an estimated $2 trillion average daily turnover. Speculators, big and small, can and do trade this huge market, and its increasing popularity has been due to the advent of sophisticated electronic trading platforms, which allow people to trade from anywhere, anytime, including from the comfort of their home.
The following attributes of the forex market illustrates why forex trading has been one of the best platform to generate consistent cash flows for wealth creation.
Unique Attributes of Trading Currencies
I trade the forex market full-time as a principal means of creating wealth because the spot forex market has so many unique advantages that make it an attractive asset class to trade.
– Largest and most liquid market in the world
According to the 2004 Triennial Central Bank Survey of the forex market conducted by the Bank for International Settlements, daily trading volume far exceeds the amount traded on all of the world’s stock exchanges combined. EUR/USD continued to be by far the most traded currency pair, with 28 per cent of global turnover, followed by USD/JPY with 17 per cent and GBP/USD with 14 per cent. Such high liquidity means that you can instantaneously buy and sell at will, without fear of being stuck in a trade or having partial fills during normal market conditions.
– 24 hour trading action for 5.5 days a week
The forex market operates from early Monday morning to early Saturday morning non-stop. This 24-hour trading action means that you can trade anytime you want, and this is very convenient for traders as they do not need to wait for any exchange to open, and also for part-time traders to trade after work. It also means that price gaps over the weekdays are almost non-existent.
– Can profit in bull, bear or sideways markets
There are no exchange-regulated restrictions on buying or short-selling currencies, unlike for stocks or futures, since there is no central exchange for the forex market. You can long (buy) a currency pair if you anticipate that the pair is going to appreciate in value, or you can short (sell) if you think that the exchange rate is going to decline. To me, it is the ultimate recession-proof business and investment. Whichever direction the market goes, you can stand to profit from its moves if you have the knowledge of how to time your entries and exits.
– Higher leverage than that offered in stocks
In forex trading, you are required to put a small margin deposit that allows you to control a much larger currency face value. A 100 times leverage is commonly offered in forex trading, although it is preferable to keep within 10 times leverage for the purpose of capital preservation. A 100 times leverage means that with an initial margin of only $1,000, you get to control $100,000 worth of currency. While leverage allows traders to maximise their profit potential, the potential for loss can be equally large. However, it is up to the individual to select the amount of leverage he or she is most comfortable with.