Reasons to invest in Forex

The global market for foreign exchange currencies is huge. Hundreds of billions of dollars and pounds are traded in the dealing rooms each day. The overall forex market is the largest, most liquid market in the world with an average traded value that exceeds $4 trillion per day and includes all the currencies in the world. The market is open 24 hours a day, 5 days a week for people, companies and governments needing foreign exchange to finance their transactions.

The foreign exchange (forex) market has no central marketplace for currency exchange; rather trade is conducted over the counter. The currencies are traded worldwide among the major financial centers of London, New York, Tokyo, Zurich, Frankfurt, Honk Kong, Singapore, Paris and Sydney- spanning most time zones.

Why foreign exchange?

Originally trading currency came up as a way to purchase foreign goods and services. Soon the investors learnt that there are huge speculative gains to be made by predicting the value of international currencies and trading them. Perhaps in the present world those who use the forex market as an investment vehicle outnumber those who trade currencies to expedite world trade which is as high as 70% - 80%.

Forex is interesting and you can make very high profits, as high as 500% to 2000% and even more with the right guidance and your fortune. But this market is only for people who have high risk capital which you can bear to loose and not for people who have just enough money to spend their life.

Compelling reasons to invest in forex:

•          Profit: Well, first reason is obviously profit. Profit is the major reason behind any type of investment. Foreign exchange trading gives the returns which you can never get in simple investments, savings accounts, fixed deposits, marketing, share markets, stocks, real estates and also other types of investment.

•          Invest as much as you want: There is no restriction about the amount of investment in forex. You could invest as much as you would like. You can even start currency trading with very small initial investment. Well the small investment will not likely give you much profit but nonetheless this feature is very helpful to new forex investors. You could start your forex account even with 30 US dollar initial investment. There is no maximum limit.

•          Largest Financial Market: It’s a gigantic market. Daily turnover of forex market is about 4 trillion dollar. Huge volume of transaction happens daily. Hence you won’t ever face a condition when nobody is interested in selling or buying a particular currency. Currency keeps on flowing.

•          Leverage in Forex Trading: No business gives you leverage as that of Foreign Exchange or Forex (FX) for short. No hidden formulas, no confusing strategies or no professional knowledge required, all you need is a decent application of technical analysis along with a logical money strategy.

Note: Leverage is a facility given by FX brokers through which you can trade on borrowed capital. If the leverage is 1:200 it means, broker invested 200 times the investment done by you. This way you can make good profits with small investment. But Leverage increases risk too, hence it should be used tactically.

•          Trading 24 hours in forex: A trader can trade 24 hours from Sunday 5:00 pm (ET) to Friday 4:30 pm. It facilitates you to trade as per your convenience, schedule as well as respond immediately to market fluctuations.

•          No commission: A trader can keep the entire 100% profit with himself. This is particularly useful for those trading on regular basis.

•          High levels of liquidity of forex: 90% of currency transaction in forex comprises of 7 currency pairs. This leads to these currency having price stability, smooth trends and high levels of liquidity. Banks facilitate this liquidity by offering cash flow to the average investors, organizations and market professionals.

•          Steady Trading Prospects: Forex is always moving and can never be stagnant no matter the markets are rising or falling. This is due to the simple fact that there are always trading prospects whether a currency is rising or falling as its co-related to other currencies.

•          Accessibility: You could do all the forex transactions online. You don’t have to travel from place to place. You only need a laptop and fast web connection to operate. All the softwares used in FX trading are very user friendly. Even a novice user can operate them easily. There is no need of any special training to do transactions efficiently.

•          Narrow choices decrease confusion: Most of the foreign exchange trading center around eight currencies namely Australian dollar, US dollar, New Zealand dollar, Japanese Yen, Swiss Franc, Canadian dollar, British pound and euro. So, there’s very narrow choice spectrum unlike share market. This decrease confusion and facilitates your decision making process.

•          Abundance of Information: To be successful at almost anything you are going to need the knowledge. To be a doctor, lawyer, police officer, architect, etc., you not only need to attend school for many years but also need on-the-job training for years. The Forex market works differently. It is easy to learn, operated by automated software in most instances, and classes are available via the web to help you understand the market and how to trade.

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Effect of Recession on forex

One of the most important or perhaps even the most important factor influencing the forex is the economic health of the countries. Some questions like - Is the country’s economy weak or strong and is inflation under control or not? Is there a predicted recession looming? How is the political climate between countries? What are the market sentiments? All of these things and more can and will impact the valuation and movement of currency in the Foreign Exchange market.

The great news is that even though the economic factors we have discussed impact the valuation and movement in the Forex market they still don’t affect your ability to make money trading on the market movement. Because the earning potential is based on the movement of the currencies based against each other and not the relative strength or weakness of the economy of the country. In Forex we are not worried whether a currency is up or down, we just want it to keep moving one way or another and we are in business!

When we talk about impact of recession as currency traders we must discern the type of recession we are talking about. Most of the time we are looking at the economy of an individual nation or group of economically entwined nations.  Rarely do you hear the term "global recession" mentioned, as this occurrence is rare due to the nature and vastness of the global economy (but not impossible).  Generally speaking, if some countries’ economies are contracting, others are expanding to fill the void.

Effect on forex due to Economic Recession in a country

If a nation's economy enters a recession - sales recede, profits decline, jobs decline and price of goods decline.  This also adversely affects national trade balances, research investment levels and venture capital, all of which are vital to economic expansion.  When this happens, governments and financial institutions must free up credit and monetary supply by reducing interest rates; making the currency less attractive to investors.  This switching from low interest currencies to higher interest currencies on the Forex market is also known as the carry trade. In carry trades, investors borrow currencies whose countries have lower interest rates, such as Japan and Switzerland, to buy higher-yielding assets.

All said it doesn’t hamper the forex trade. In fact it adds more clarity about the position of that currency in the market leading to increase in trade volume and assured profits for the forex trader.

Effect on forex due to global recession

It greatly increases the volatility and provides more opportunities to make more money. Individuals looking for safe haven for their investments turn to the forex market due to the moves engineered by fear and greed.

Central banks and Governments around the world start injecting stimulus funds to stimulate their respective economies, and the implication is to make more money available for trading and these money keep exchanging from one hand to the other, this is what forex trading is all about: exchange of currencies with the availability of more money and increased volatility comes the provision of greater trading opportunities.

Forex traders start looking towards Asia. Asian currencies are seen as strong especially in light of the entire region’s growth in terms of both production and of demand. The crowd is going to be pursuing Asian investment because it may be seen by some as a safe bet despite the uncertain times.

The ambiguity might lead to losses for naïve traders who are not able to keep their emotions in check to survive the volatility of the market swings. Before recession, it has been said that 90% of traders lose money, but the case has even worsened to the point of about 1% who really keep the money.

Forex traders start concentrating on their currency preferences rather than new currencies leading to decline in trade in less popular currencies.