Why Trade Currency?

Why Trade Currency? A few reasons and a dash of caution before jumping into foreign exchange trading.
One of the limitations of blogging about personal finance without becoming an expert first, is that there are a few topics I probably shouldn't touch. Like Forex.

It's a perfectly legitimate investment vehicle, and people do invest in them. However, since I don't trade currencies myself and it's a high-risk investment, it's reckless for me to recommend it.

Luckily, today we have a guest blogger who can tell us about the advantages of currency trading.

The forex market is one of the most exciting markets available to traders. While potentially very lucrative, it also carries a lot of risk for people who don’t know what they’re doing. Forex trading involves a lot of analysis, caution and patience, but can be a gold mine when done right.
If you’re on the fence about investing in the forex market, here are a few things that might help you make a decision. 

The largest market in the world
If you ask someone who has minimal knowledge on financial markets about stocks, there is a high probability that the person would have heard of it – even if they don’t know the specifics. On the other hand, if you mention forex trading, you’d probably get a blank stare. For most people, foreign exchange is when you trade your “pasalubong dollars for pesos to buy that new must-have gadget.
Would it be surprising to learn then, that the forex market is the largest in the world?
Forex trading has an average trading value going into the trillions of US dollars per day and involves all the currencies in the world. In contrast, the largest stock markets trade in the billions.

Liquidity you say?
The size of the forex market also means that large amounts are traded every day. By large amounts, I mean something like $4 trillion. With that large a market, there is always someone who will be willing to buy what you’re selling or sell you something you need. This means that you can get in and out of the market at any time. It’s similar to our banks, who cannot deny the request for exchanging the peso to foreign currencies and vice versa. 

Anytime, anywhere
Let’s consider the stock market. It operates at very specific trading hours where every transaction takes place. This is a potential problem for people who can’t monitor the market at these particular hours. On the other hand, forex trading is open 24 hours a day, six days a week. It doesn’t matter if you’re a day person, or a night person – you can choose the hours that you want to trade in.
Modern forex trading platforms also allow people to trade anywhere they want, as long as they have a computer or mobile device and an internet connection.

The power of leverage
In non-financial terms, leverage is defined as the increase in force gained by using a lever.  Through a simple mechanism, power is multiplied, allowing regular people to lift objects far beyond their actual strength.
In forex trading, leverage allows investors and traders to control larger amounts with smaller investments. The forex market offers leverage of up to 100:1, which means that a $1000 investment will turn into a sweet $100,000 on the actual market. In contrast, stocks traditionally offer 2:1 leverage, which means that same $100,000 will need a $50,000 investment.
One caveat however is that leverage can be a double edged sword. A bigger leverage means that you can get larger profits with a more modest amount. That same rule, however, also applies to losses. Just like leverage magnifies gains, it also magnifies losses. Most forex brokers try to strike a fine balance for leverage between maximized profit and minimized losses.

If you’ve watched “The Wolf of Wall Street”, then you probably know that a handful of people can manipulate the system and make themselves filthy rich at the expense of others. There are all sorts of shady tricks and they come in a variety of names. Pump and dump, chop stocks, bait and switch are just a few of the methods an unscrupulous group of people can trick the market. The road to stock trading success is rife with dangers.
With its size, its liquidity, its importance to the national governments, and the sheer number of participants, it’s virtually impossible to manipulate the forex market.  
Which means poor Jordan Belfort would have had to make his money in a legitimate manner.

About the Author:
Bwayan Jordison, is a Gamer, a Toy Collector. He is also a contributor and Forex Trader at Metisetrade Inc., he writes articles to help and educate everyone about the benefits of investing to Foreign Exchange in the Philippines.

I'd like to end this post by urging caution. Although all points mentioned are valid, it is still worth noting that this is a high-risk investment and people shouldn't try it without first establishing an emergency fund and properly learning how to trade currencies (especially before using leverage). Also, just like in the stock market, manipulation cannot be ruled out.

That said, it is a legitimate investment vehicle; just make sure you do your homework first.

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