Forex is a trade arena where investors trade in foreign
currencies. This article explores the features of Forex, a market with a daily
turnover of approximately $3 trillion.
How Does Forex Work?
The Forex market is open to investors 24 hours a day, 5 days a week, following the trading week. Currency values fluctuate throughout the day according to supply and demand of individual currencies.
Forex is considered one of the most secure investment
mediums. It is deemed more secure than channels that attract higher risk, such
as bonds, stocks, and options. However, it must always be remembered that no
investment is guaranteed or without risk.
The stock market works in essentially the same way as any
market. It is a place where commodities are bought and sold. The Forex market
trades currencies, with more than 100 different currency pairs being traded
every day.
Currency exchange rates are the same throughout the whole
world. If the Euro is valued at 1.56 US dollars in Tokyo, it will be valued at
the same rate in New York.
Forex investors are speculators. They buy and sell foreign
currency in the hope to attain a profit from fluctuations in exchange rates. Though
the Forex market comprises commodities as well as currencies, just 5% of transactions
are for the purposes of commerce, with the remaining 95% being speculative in
nature.
What Are the Advantages of Forex?
When an investor purchases a stock and cannot sell it back,
they are essentially stuck with it.
This scenario is far less likely in the Forex market.
When an investor buys Pounds, US Dollars, Euros, or any
other tradable foreign currency, they are able to liquidate their asset at any
time.
One of the biggest advantages of currency trading is that it
does not matter what the trader buys, there will always be a buyer when they
want to sell it.
Another key advantage of the Forex market is exchange rates
are beyond the remit of external financial bodies. No matter how accomplished a
speculator is, he or she has no influence over the exchange rate. Central banks
do intervene once a decade, and they can affect currency values by up to 2%,
but movements of this nature typically last for just a few hours before the
exchange rate returns to its normal market price.
Since no other financial body – as large as it may be – can
affect currency values, this makes currency trading much fairer than trading
stocks or options, where large brokers have the ability to change stock prices
by tens of percentage points at a time.
Finally, due to its nature and
availability, foreign currency is easier to follow and trade. With stocks,
investors must keep a variety of factors in mind. For example, with each
company they invest in, investors need to identify the other shareholders and
what percentages they own. They will also need to access profit and loss
reports, balance sheets, and internal information, such as future contracts and
resignation of company executives. Keeping track of all of this information on
a day-to-day basis, particularly where the investor owns shares in several companies,
can be prohibitively time consuming.
With Forex, however, traders need to
keep tabs on just five to six datasets every month. Trading companies provide
investors with this information in real-time, enabling them to identify opportunities
at a glance, and make trades accordingly.
One of the other big advantages of
Forex is that traders all over the world receive the same information, at the
same time. For instance, when the US Federal Reserve Governor decides to
increase interest rates, this information is relayed instantly all over the
world, giving traders in all countries the same opportunities to buy or sell,
creating a level playing field globally.
HYCM provides trading information as
well as a wide variety of different trading instruments. With more than 40
years of group experience, HYCM
offers more than 100 different trading instruments on both MT4 and MT5, including
CFDs for currencies and stocks.
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Disclaimer: Any opinions made may be
personal to the author and may not reflect the opinions of HYCM. All
expressions of opinion are subject to change without notice. This material is
considered a marketing communication and does not contain, and should not be
construed as containing, investment advice or an investment recommendation or,
an offer of or solicitation for any transactions in financial instruments. HYCM
makes no representation and assumes no liability as to the accuracy or
completeness of the information provided, nor any loss arising from any
investment based on a recommendation, forecast or other information supplied by
an employee of HYCM, a third party or otherwise. Past performance is not an
indication of possible future performance.
CFDs are complex
instruments and come with a high risk of losing money rapidly due to leverage.
67% of retail investor accounts lose money when trading CFDs with this
provider. You should consider whether you understand how CFDs work and whether
you can afford to take the high risk of losing your money. For more information
please refer to HYCM’s Risk Disclosure.
