About Foreign Currency Exchange Spot Trading
Why Spot Forex is Today's Fastest Growing Trading Market

LIQUIDITY: Spot Forex trades are highly liquid because by definition they are short term trades. Liquidity attracts traders because it affords the freedom to open or close a position at will, allowing invested funds to be highly accessible. Liquidity frees traders from the worry of being stuck in a position due to a lack of market interest and movement. Trading the G7 major world currencies (USD, JPY, EUR, CHF, GBP, CAD, AUD) are considered to be the most liquid. In this very active US$1.5 trillion dollar per day market, major international banks are always actively providing the market with both bid (buy) and ask (sell) movement. Due to high market liquidity most trades are executed at a single market price. This avoids the 'slippage' problem of other exchange-traded instruments where only limited quantities can be traded at one time at a given price.

LEVERAGE: Forex Self-Traders are able to trade foreign currencies on a highly leveraged basis - up to 100 times and more their investment/trading funds (leverage varies with clearinghouses). As an example, leveraged 100 times an investment of USD $10,000 would permit a self-trader to trade up to USD $1,000,000 worth of any particular currency. Leverage enables the trader of a smaller amount of funds to participate in trades alongside the largest traders in the world, including the largest banks.

24 HOUR MARKET: A substantial attraction for self-traders to the Forex Market is that it has no time or time zone constraints, it is open 24 hours per day throughout the week (closing worldwide Friday afternoon and reopening Sunday afternoon). If the European Market is closed on one side of the world the Asian Market will be open on the other and so all world currencies can be continually in trade. This is why Forex is called "the Market that never sleeps". Even when one country is experiencing a national holiday closing other countries are not, and so the Forex Market remains active. This is a great potential advantage because it is open around the clock Forex traders can react to news when it breaks, rather than waiting with the crowd for the opening bell, as is the case with most markets. This enables traders to take positions anticipating the impact on the exchange rate of an important announcement, world event, or piece of news information. Adding to this advantage of 24 hour trading, high liquidity allows Spot Forex Market traders to exit or open a new position regardless of the hour.

RISK MANAGEABILITY: Forex self-traders have greater flexibility with respect to their desired trade quantity. With most Clearinghouses traders can open and fund their trading account with a relatively small amount of money (although less than $5K USD is not recommended for margin-requirement risk management). And self-traders can trade any part of the amount of funds in their account, specifically tailoring their trades to their own needs or risk tolerance.

INFORMATION FLOW: The Foreign Currency Exchange is a market where there is little or no 'inside information'. Because the Foreign Exchange has to do with world economy and the economies of countries, all pertinent market-moving news is released publicly so everyone in the world receives the same news at the same time. This is in contrast to the Stock Market where it is a relatively common experience of Stock Market self-traders to have a certain stock suddenly lose value by 5% or more without having any idea what caused such a quick down-spike. Later the newspaper will report that earnings forecasts of that stock have been revised downward; or that key executive at a particular company has resigned; or that the company's accounting practices have been called into question; or that some other influential piece of information was released that the Stock Market Trader was not privy to quickly enough. Instantaneous access (online through the trading platform in many cases) to Forex market-making news does more than level the playing field, it provides the Forex self-trader with the incalculable trading advantage of 'being in the right place at the right time'.

NEVER A DOWN TRADING DAY: Another advantage of the Forex Market is that there is no 'bear' market, per se. Currencies are traded in pairs, for example US Dollar vs. Yen or US Dollar vs. Euro. Every position involves the selling of one currency and the buying of another. If the trained trader (with the aid of charting indicators, analysis, pattern recognition, etc.) determines that the Euro will appreciate against the Dollar, he/she can sell Dollars and buy Euro. Or if the trader determines that the opposite trade would be more profitable, he/she can buy Dollars for Euro. The potential for profit exists either way as long as there is any up/down movement (of the exchange rate) between the two currencies being traded. In other words, one side of the pair is always gaining, and provided that the trader picks the right side, a potential for profit ALWAYS exists.

Reprinted here by permission of The Devonhill's Foundation, 2002

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Understanding the Popularity of Foreign Currency Exchange Market Spot Trading
www.Forex-Trader.com
© 2002 Devonhill's Foundation LLC