Forex glossary of terms
Forex market advantages
The foreign exchange market offer some unrivaled advantages in terms of earning potential, protection and facilities available.
Since foreign exchange involves worldwide participation, the distinct plus point about it is its market size. With almost $2 trillion exchanging hands every single day, nothing else comes close to its volume as shown in the chart below. Note that its size remained unmatched even if the New York Stock Exchange (NYSE), equities and future market were to be combined. From here, more advantages are apparent.
Because of it sheer size, buying and selling currencies is a breeze. Forex is virtually the most liquid market in the entire world, so investors can enter and exit the market easily regardless of the market condition. There is also no limit to how much currencies one can buy so the earning potential is endless.
Also, the market is too big for any speculator to manipulate, not even central banks. Bank intervention can have some impact on foreign exchange rates but they are usually shortlived and is increasingly ineffective. Due to this reason, investors will always get fair prices in foreign exchange.
Forex can generate profit no matter if the market is bullish or bearish, as long as investors spot the right trend. It is even justifiable to say that the Forex market is always a bull market as it involve trading one currency against another and there are always opportunity for profit. For example, one can sell the Euro if one think its value is dropping and profit from the drop, if it occurs, and vice versa.
Taxes can deplete one's profit but like they say, nothing is certain but death and taxes. Fortunately, forex traders have it better than the rest, when it comes to paying taxes on one's profits.
Nothing bends over backwards to accommodate one's timing like forex does. The forex market is active 24 hours a day except for weekends. When the Asian market closes, the Western market opens. Somewhere in the world there are bound to be people buying and selling currencies. There is no need to wait for a specific market to start to trade. Hence, anyone can make profit from forex regardless of their schedule and work commitments.
Want to trade but hate paying commissions? In forex, there isn't any to pay. What you see is what you pay. The bid and ask spread is usually less than 0.1% and may go lower at bigger dealers.
Unlike other investment markets, one do not need a lot of capital to trade in forex. Usually, one can open a forex account for as low as $200.
What can one buy with just $200? Well, how about $20,000 worth of currency? Using the margin facility offered by trading firms, a smart investor can leverage his money to work harder. Certainly, this will also mean that if one loses the money, he would have to repay it. This is where most people will stay away from, since they do not want to lose what they can't afford to lose, which will lead to the next point.
To protect one's investment, especially when a large amount of margin is involved, a stop loss is the one tool that can safeguard one's capital. In other words, one can enter and exit the forex market at a specific price points that are guaranteed. Although this option is also available in stocks, they are not the same thing. With stocks, the market can open at a lower point than one's set stop loss, so an exit may not be triggered in time.
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