There is no other market in the world that can compare itself to the foreign exchange market.
With almost USD 2 trillion in daily average the Forex market is bigger than all the stock and bond markets of the entire world. A better way to understand its enormous size would be to compare it with any national stock exchange. Let’s use the New York Stock Exchange as an example. The total volume of trading in Forex is more than one hundred times the daily trading on the NYSE on an average day.
With a volatile currency environment in this age of globalization and free market, the investors and financial institutions have found a new battle-field in the global Forex trading to prove their financial power and also to cut a sizable profit. Why do you think, this Forex trading has flown to such a great height in the recent years? Well, there are several reasons behind this immense growth.
The operations in stock market are supervised by a centralized exchange. But in Forex market you will not find any such exchange. It works on the “interbank” market, making it similar to an OTC or over the counter market. The two parties in the trade interact with each other directly either over telephone or through the electronic networks all over the world. Thus in Forex trading you do not have to pay commission to the share brokers for your every buy and sell of the stocks. And this opportunity of trading without commissions makes it particularly lucrative as an investment option for seasoned investors who frequently take part in day trading.
The five major cities of the world take the center stage in Forex trading and they are: Sydney, Tokyo, London, Frankfurt and New York. Thus unlike the domestic stock exchanges, Forex market is functional internationally and the market operates 24-hour a day. Starting from Sunday evening (20:00 GMT) to Friday evening (22:00 GMT) you can carry on with your speculative endeavors in the Forex market. It lets you take the advantages of happenings world over affecting the markets internationally.
Then, Forex market is exceptionally liquid. You will always find buyers for your currency and sellers to buy from. If you are dealing in the major currencies, you can rest assured of the price stability and narrow spreads. It is mainly the leading banks with global presence that provide liquidity to investors, companies, institutions and other market players.
Leverage that you enjoy is rather high. It allows you to hold assets 100 times more than your margin deposit. Suppose you have a deposit worth of USD 10,000. It allows you to trade on the volume worth of USD 1,000,000 through leverage. Then you can leverage the first USD 25,000 of your investment up to 100 times. But for the additional collateral, you get the leverage up to 50 times.
It may sound very interesting to step into the foreign currency market in hope of making some profit, But be vary of the risks that are involved. The internet has made the opportunity open for everyone to become small time investors, but before stepping in this volatile world of foreign currency trading you should spend some time to learn about the implications and pitfalls that this market is entailed with.