What Makes Forex Trading So Attractive To All Types Of Investors?
A couple of decades back, only the investors with solid financial backing, and the multi-national corporations were able to actively involve in currency trading. Now with the advancements of digital networks and global financial outreach, even people with low investment capacities can participate in the currency trades or Forex trades.
Understanding risks and rewards of Forex (Fx) trades
Foreign Exchange Market is where currencies from different countries are bought and sold. Forex brokers have expanded their business prospects to other countries, where people can make investment with their local currencies. Online trading platforms and real-time availability of market data, has opened the doors of opportunity for all types of investors.
Traders can earn good profits on the exchange rate fluctuations, because they can use the leverages for trading. Similarly, they can lose more money because of the leverage used, if they make the wrong predictions.
Currency exchange rate fluctuations are caused due to many factors like inflation rates, Government debt, political stability, market sentiments, recession, interest rates, etc. Obviously, trading currencies is risky, but you cannot deny the scopes of making huge profits in shorter timeframes. Now, lets see why so many people get attracted to Forex trading.
Firstly, the size of the market is huge, where $2 trillion to $5 trillion are being traded every day. The size of currency exchange market is much bigger than the stock markets and the commodity markets put together.
Unlike the stock market, Forex market is open 24/7. Investors can make trades at their own convenience. Since Internet is available almost everywhere, traders can participate in the market from anywhere across the world.
Forex market provides a level playing ground for all types of traders, no matter how big or how small they are. The level of big financial institutions is same as small investors in the Forex market. You can get started on trades with capital amount of just around $500.
Since there are many factors are connected to currency exchange, the exchange rate keeps fluctuating fast. Even the announcements of major financial events can change the course of currency exchange rates in the market. The best thing about this market is that you can cash in on the micro-movements by making the right speculations.
Forex market profits and risks are amplified because of leverage. Basically, most of the top Forex brokers offer 100:1 leverage ratio. Potential loss and profits get multiplied by leverage ratio. What it means is that you can make significant profits or losses, depending upon your trade results.
Forex trading allows the investors to earn from both fall and rise in currency prices. It is a two way market, and you work in currency pairs. If one currency value decreases, the other increases. If you have a proper training strategy in place, the possibilities of earning profits is more.
Liquidity with Less slippage
Decentralized Forex market means that there are lesser chances of slippage. The difference between quoted price and actual price paid or received is termed as ‘Slippage’. Basically, slippage occurs, when there is less liquidity. However, FX market is huge with sufficient liquidity, so it is less prone to slippage.
Money withdrawal policies differ from one traders to another. In most cases the liquidity is good, and you should be able to withdraw money whenever you wish. Make sure that you learn about the policy before choosing your broker.
Currency prices get driven due to events and actual financial activities of the country. Traders can analyze on how such events can affect the currency exchange, by using news release analysis, historic charts, technical tools, etc.
Forex can be good instrument to balance the portfolios, especially if they are focused more on equities. Any financial expert will recommend diversification of portfolio for mitigating the risks.
You can definitely make good money on Forex in a short duration of time, but you should not consider it as a gamble. Make sure that you learn all about how to analyze the market movements, before taking the plunge into trading.