The Unique Characteristics of the Foreign Currency Exchange Market
The foreign currency exchange market is by far the largest asset class today with almost $4 trillion in daily turnover volume. But much more than its gargantuan daily turnover, it has unique characteristics that make it stand out from the rest of the other financial markets.
Forex is a highly liquid market.
Because of its sheer size and huge daily turnover volume, foreign currency exchange offers unmatched liquidity. What this means is there will always be a buyer for every seller and a seller for every buyer.
The environment in forex trading is very much unlike the stock or options markets where you may not always be able to liquidate positions any time because of the absence of a counter trade. You would often experience incidents in the stock or options market where it is difficult to settle your position at certain price levels just because few traders are more than willing to match your offer. This never happens with the forex market. You would be able to settle at any time and at any given price.
It is a highly leveraged market.
You are allowed to trade on margins or technically on borrowed capital with forex. You get more value for your money as the returns can be magnified a hundred fold. However, you must always remember that there always two sides of the coin when it comes to leverage meaning it can also magnify your losses.
No deadlines or extensions to contend with.
You can actually hold on to currency contracts for as long as you want. With other financial markets, you are constrained by deadlines and extensions which often work to your disadvantage like being forced to settle your positions even at a loss or with very little profit when the deadline or the extension limit is reached. With forex, you can buy and hold a position for as long as you want and for as long as your margins will allow it.
Forex enjoys the ease of access advantage.
You can access the foreign currency exchange market and your account from any place where there is an internet connection without difficulty and trade from almost anywhere you may happen to be. With other financial markets, you may need to be physically present to execute a trade.
Traders get a 24 hour trading opportunity 5 days a week.
Trading the foreign currency exchange market starts on Monday, 8 am Australian time (which is roughly 5 pm Sunday New York time). It continues nonstop until Friday, 4 pm New York time. This means you have plenty of opportunity to execute trades and ample time to make adjustments whenever and where ever such opportunities present themselves.
Forex Trading is highly transparent.
This is one financial market that is almost impossible to manipulate. It will require quite a great amount of assets for a group of individuals to unduly influence the market. Although we have seen concerted efforts by central banks of highly industrialized nations to try to put the rates in check, their attempts were always futile and if they do succeed at times the effects are short lived as the natural market forces is bound to take the market back to its original course.
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