Investment Option: Why Invest in Forex Market?

If you are an investor interested in casting a wider net and expanding his investment portfolio, you may want to try something beyond the normal investment range. At that point when bonds and stocks just aren’t working out, there is only one investment option to try out – the Forex market.  If you are wondering what Forex trading is, well, Forex is simply a short form of “foreign exchange”. Forex market deals with the trading of one currency against another. Due to the fluctuations in the currency exchange rates, forex traders can either make a profit or a loss depending on which side they are. The prevailing exchange rates can either be favorable or unfavorable. Most investors consider forex trade risky but I believe the risk only come in when you actually do not understand whatever you are doing and thus rely on luck. With that said, then why would you want to venture in forex trade? The truth is, Forex investment offers many advantages that other investment options cannot.

1.       1. Fewer investment options

One of the benefits of Forex trading is that you are only presented with a few selections to choose from. You may only get 20 currency pairs to trade from a typical forex broker.  Compared to stocks which literally have thousands of choices to make, choosing a forex currency pair to trade is much simpler.

In the bond and stock markets, you may be easily overloaded with information. To come up with a decision (an informed one for that matter), you will have to study the company’s financial statement and even use other advanced criteria. In short, you must understand what is going on in the company and in most cases, to do so; you will need the advice of a professional. In foreign exchange, however, you only need to specialize in a small number of currency pairs.

2.       2. Trade with leverage

Another advantage of Forex trading is your ability to trade with leverage. Forex offers a larger leverage than any other financial market. While you can only get about 2:1 leverage in stock market, Forex traders can enjoy up to 500:1 leverage. This means, as a Forex trader you can control a huge amount of money with your small investment capital.

Even though this may look dangerous, Forex brokers employ it so that you will never lose more than you have invested. Every broker has his/her minimum margin requirement. Your account should always be above that balance and in case of a fall below it, the broker will simply close out that position and prevent your account balance from going into the negatives.

3.       Savings in Transaction cost

Stock brokers always go through an annoying process of having to pay a commission to the stock broker each time they transact. If you trade more frequently, these commissions will add up and badly eat into your profits. In contrast, it is possible to work with forex brokers who do not charge a dime for transaction.

This possible because most forex brokers are paid by the spread (the difference between the bid and ask price).  This difference is often nominal and therefore helps you save on your transaction costs when compared to other markets.

4.       3. Market size and liquidity

Forex market’s large market is an advantage on its own. In terms of number and money, forex is by far the largest market on earth with over $40 trillion in volume daily. This means the forex market is so huge that no single entity could corner it over a long period.

The large number of players involved increases the market’s liquidity. Whenever you offer a trade, it will be filled instantaneously.  

5.       4. Trading anytime

What about this? You can actually trade any time: early in the morning, late in the night or during normal working hours. The fact that forex trading does not have a central hub makes it possible for traders to access their trade, via a computerized exchange, 24/7.  A part from the weekends, you can trade all the time. This gives you more time to trade and make money and is even feasible for those investment starters who are still in full time employments.

Investing in Forex Trade

Even though forex trade has all these benefits, it is not for everyone.  If you really have interest in Forex and want to give it a try, it is would be wise you open a demo account with a forex broker.  You can then down load and install the trading platform on your computer and trade in demo mode until you feel comfortable. In the demo mode, you do not have to invest any money. Therefore, if you lose the play money and do not like the venture you will be free to quit with no loss.  Forex, just like any other financial market, offers you a chance to get rich but if you may also lose your investment. All you need to succeed in the Forex market is knowledge and discipline. If you are ready to learn and can stick to a particular investment strategy, then you can make plenty of cash.