Investing in the Forex Market

In this article we want to demonstrate you the advantages of trading the Forex market. There is one myth which we want to liquidate before I go further. The myth is that there is a difference between trading and investing. To liquidate that myth we quote from Al Thomas, President of Williamsburg Investment Company who wrote "If It Doesn't Go Up, Don't Buy It". He said "Everyone who invests is a trader, only the time period is different." It is a lesson which you should took seriously.


So now let us compare features of Forex trading to those of stock and commodity trading.


Liquidity: The Forex market is the most liquid financial market in the world around 1.9 trillion dollars which are traded everyday. The commodities market trades around 440 billion dollars a day and the US stock market trades around 200 billion dollars a day. This ensures you better trade execution and prevents market manipulation. It also ensures easily executable trading.


Trading Times: The Forex market is open 24 hours a day except weekends which means that in the US it opens at 3:00 pm Sunday (EST) and closes Friday at 5:00 (EST). So it allows active traders to choose the times when they want to trade. Commodities trading hours are all over the board depending on which commodity you are trading. Including extended trading times US stocks can be traded from 8:30 am to 6:30 pm (ET) on weekdays.


Leverage: Depending on your Forex account size your leverage can be 100:1 although there are Forex brokers which offer a leverage of up to 400:1. Leverage in the stock market can be as high as 4:1 and in the commodities market the leverage varies with the commodity traded but it can be quite high. Because the commodity markets are not as liquid as the Forex market its leverage is riskier.


Trading costs: The transaction costs in the Forex market is the difference between the buy and sell price of each currency pair. There are no brokerage fees. For the stock and the commodity markets there exist transaction costs and brokerage fees. Even when you use discount brokers those fees add up.


Minimum investment: You can open a Forex trading account for as little as $100 but there are Forex Broker which offer mini accounts, too.


Focus: 85% of all trading transactions are made on seven major currencies. In the US stock market alone there are 40,000 stocks. There are just over 200 commodity markets although quite a few are so illiquid that they are not traded except by hedgers. As you can see the fewer number of instruments allows you to study each one more closely.


Trade execution: In the Forex market trade execution is almost immediately. In the equity and commodity markets you have to count on a broker to execute your trades and their results are sometimes inconsistent.


While all of these features which make trading the Forex market very attractive it still requires a lot of education, discipline and patience. Please have in mind that all kind of trading can be risky.