PREMISE: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.
The cash/spot FOREX markets possess certain unique attributes that offer an unmatched potential for profitable trading in any market condition or any stage of the business cycle. It leaves one to wonder why bother?
The answer to that is very simple. It boasts:
A 24-hour market: A trader has the chance to take advantage of all of the profitable market conditions at any time which means that there is no waiting for the 'opening bell' like the exchange.
Highest liquidity: The FOREX market is the most liquid market in the world. That means that a trader can enter or exit the market whenever they want during almost any market condition minimal execution barriers or risk and no daily trading limit.
High leverage: A leverage ratio of up to 400 is normal when compared to a leverage ratio of 2 (50% margin requirement) in the equity markets. Of course, this makes trading in the cash/spot forex market awkward as well because it makes the risk of the down side loss much higher in the same way that it makes the profit potential on the upside much prettier.
Low transaction cost: The retail transaction cost (the bid/ask spread) is actually less than 0.1% (10 pips) under the normal market conditions. At larger dealers, the spread could be less than 5 pips, and may expand a great deal in fast moving markets.
Always a bull market: A trade in the FOREX market means selling or buying one currency against another. In essence, a bull market or a bear market for a currency is defined in terms of the outlook for value against other currencies. If the outlook is positive, you get a bull market where a trader profits by buying the currency against other currencies. However, if the outlook is negative, we have a bull market for other currencies and a trader profits being forced to selling the currency against other currencies.
In either case, there is always a bull market trading opportunity for a trader.
Inter-bank market: The foundation of the FOREX market consists of a global network of dealers that communicate and trade with their clients through electronic networks and telephones. There are no organized exchanges like in futures that are there to serve as a central location to facilitate transactions the way the New York Stock Exchange serves the equity markets.
The FOREX market actually works a lot like the NASDAQ market in the United States operates, and because of this, it is also referred to as an over the counter or OTC market.
No one can corner the market: The FOREX market is so large and has so many participants that no single trader, even a central bank, can control the market price for an extended period of time. Even the interventions conducted by mighty central banks are getting to be increasingly ineffectual and short-lived. This means that central banks are becoming less and less inclined to intervene to manipulate market prices.
It is Unregulated: The FOREX market is seen as an unregulated market although the operations of major dealers like commercial banks in money centers are regulated under the banking laws.
The daily operations of retail FOREX brokerages are not regulated under any laws or regulations that are specific to the FOREX market, and in fact, many of these types of establishments in the United States do not even report to the Internal Revenue Service.
Bryan Thorby is the publisher of "Your Guide to Successful Forex Trading" available at http://www.oneworldbiz.net/finance/forex-trading.html and provider of Forex Trading resources at http://www.managing-your-finances.com/forex/ where you can Learn about Forex Trading - Training Programs, Forex Software, free demo Forex Accounts, and learn how to trade like the professionals.