Richard Nixon just made your investment portfolio sexier. When the former President dropped the gold standard
in 1971, investment trading in the foreign-exchange market, also known as Forex, opened up. Now, investors have a reason to be happy even if the economy is all frowns. Forex trading offers enticing advantages over stock trading.
Forex Trading Offers a Way to Make Money in a Bad Economy
The future of the economy remains uncertain. When the economy is down, stocks are down as well. Forex trading, on the other hand, pits one currency against another. In this situation, one currency will always rise relative to the other currency. There is never a bear market in Forex trading.
Forex Trading Offers Instant Buying and Selling
In stock trading, a company has a finite amount of stock to sell and the stock exchange business hours means traders have to make their decisions in the wee hours of the morning.
The Forex market is open 24 hours a day, 5.5 days a week. You are free to make your trades on your schedule, when you are alert and unrushed.
Foreign-exchange markets are the largest financial market in the world, with trades totaling $1.9 trillion per day, according to The Economist . The liquidity inherent in Forex means trades can be executed in seconds.
Forex traders use derivatives to hedge their bets. Derivatives often cause the most confusion for beginners. While there are many types of derivatives, below are two common examples.
Forward Contract: A forward contract is a contract between a buyer and seller that specifies the amount of currency to be traded, the amount at which it is to be traded and the future date it is to be traded. The buyers and sellers who enter into a forward contract are speculating, and make or lose money, on the future price of the currency.
Binary Options: Binary options are derivatives that give you the option to trade currency at a future date at a set price. When that date arrives, if the trade would result in a loss to you, you have the option to not buy. Your only loss would be the upfront price for the binary option.
There Are No Commissions in Forex Trading
When you trade stocks, you pay a commission to a broker every time you buy or sell stock. Frequent buys and sells mean you lose money even if your investments don’t.
There are no commissions in the Forex trading market. Firms that facilitate Forex trading make money with the bid-ask spread. The spread is the amount by which the seller’s asking price is higher than your bid. The advantage of Forex trading is that the bid-ask spread is very low due to the high volume of trades and the trader only has to pay it once.
Forex Trading Offers Market Transparency
When you trade stocks, it is more difficult to get information about the companies you are trading. Foreign-exchange rates involve public information that is often covered by the news media. Forex trading is so transparent that there is no such thing as insider trading when trading currencies.
Forex Trading is Great for Enterprising Investors
There are many of advantages to Forex trading. But like any investing, it involves risk. Forex trading is a great opportunity for an investor who works hard to study the process and treats Forex trading as a business. Belief in Richard Nixon’s sexiness is not required.
About the Author
June Owensboro loves hiking and reading, and is working to start her career in writing. She is a freelance writer for a term life insurance quotes website.