Forex Trading

Diversification

We live in a world where terrorist attacks can occur at any time and place; where geopolitical tensions over nuclear power, oil, human rights, and many other issues threaten to disrupt normal trade and economic relationships; where U.S. companies are investing heavily in China and else, vhere to reduce their labor costs; and where China, in turn, is trying to invest in U.S. companies. Economic uncer­tainty seems to be a way of life. Traders cannot express their investment concerns about these issues, whether for protection or speculation , in any individual nation’s stock or interest rate markets. Forex is the only instrument that incorporates all of these areas of potential con­ cern and serves as a distinct asset class for speculators and investors.

Global Market

Markets such as equities or interest rates tend to be traded locally during the business day in their own time zone. For example, Japanese traders focus on Japanese stocks, European trad­ ers on European stocks, and U.S. traders on U.S. stocks. All of these traders certainly should be aware of what is happening elsewhere as the global integration of financial markets continues. However, an event in Japan that directly affects Japanese stocks may not have the same effect in Europe, and traders of European stocks may not pay as close attention to what happens in the Japanese or U.S. stock markets.

Forex, on the other hand , is an asset class that is truly a global invest­ ment reflecting every economic development on earth. Whatever has an influence on currencies in Japan has all effect on what happens to currencies in London or Chicago. It is clear that intermarket relation­ ships among currencies are extremely important in today’s world.

Twenty-four-hour Trading.

Forex trading begins Monday morning in Sydney, Australia (Sunday afternoon in the United States) and moves around the globe as business days begin in financial centers from Tokyo to London to New York , ending with the close of trad­ing Friday afternoon in New York. Anything that happens any where in the  world at any time of day or night affects the forex market immediately. It is not necessary for an exchange to open before the effects can  be seen. The forex market  is allways  open for  trading.

Electronic Trading.

With the advances of technology, specifically, the Internet and online trading, and electronic hade-matching plat­ forms, most forex trade executions are instantaneous, getting traders into and out of positions with the click of a mouse once they make a trading decision. All of the benefits of electronic trading and updates of positions and current stat us are available to today’s forex trader.

Leverage.

Forex markets provide some of the highest leverage of any investment vehicle. Traders may put up only a few hundred dol­lars to control a sizable position worth $100,000. As a result, a small move in a trader’s favor can produce a big return on an investment. How ever, traders must remember that leverage works both ways . A small move that is against a position can eat up the money in trad­ers accounts quickly if they are not nimble traders who take quick action  to  cut  losses.  What  leverage  gives, it  can  also  take  away.

Plenty of Information.

Governments issue dozens of reports every month that influence the forex market. Information is widely disseminated by the financial media.With advances in the Internet.

Volatility is necessary for a trader to make money in any market , and the forex market usually provides more than enough volatility because there are new developments that affect the forex market every day.

Not Too Volatile.

Forex markets can have abrupt price movements, but as a 24-hour market where price changes are always flowing through the system , forex markets rarely make the type of price move seen in stocks or futures. Stocks can plunge or soar 10 percent or more on some overnight earnings report or other announcement, leaving gaps on price charts when an exchange opens. A $3 change on a $30 stock is not that unusual, but a 10 percent move in a currency-for example,  12  cents  if the  euro  were  at  $1.20-is quite  unlikely.

In addition,while emerging markets may incur some extreme currency price movements, the major currencies are not like Enron , Worldcom, or dotcom stocks that fly all over the cha.ii or even plummet and, like Refco, declare bankruptcy. If forex trading appears too volatile and risky, it may be a pleasant surprise for traders to learn that the forex market is probably more stable than the equities markets.