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How Foreign Exchange Market Trumps Other Investments

foreign exchange market

Every time an individual decides to put up some of his money towards speculation, there are various options that he has to consider. Speculation can be done either through trading or through investment. Regardless of what your chosen method of speculation is, you would be hard pressed to find any options better than the foreign exchange market.

It is likely that you are wondering why you should trade in the forex market instead of other investment markets such as stocks or futures. The comparison between different markets is not simple, but it is resoundingly in favour of the forex market. Consider the following.

Lower Margin Requirements

Every investment market offers its traders the chance to use leverage to increase their purchasing power. First of all, it should be mentioned that the extent to which a trader can use leverage in other investment markets pales in comparison to the maximum leverage offered by the foreign exchange market.

In addition, margin requirements for availing leverage can make investments difficult for small time traders. This is not the case in the forex market where margin requirements are extremely low.

Costs and Commissions

Nobody gets to trade in any market for free. There are always commissions to consider. These commissions can easily make losses worse or profits less substantial. Commissions tend to be pretty high in investment markets but this is not the case in the foreign exchange market.

While some brokers do follow the commission system of payments, the size of these commissions tends to be fairly small. Moreover, most brokers get their income through spreads which means that a trader does not even have to worry about commissions.

Controlling Risks

There is risk in any form of speculation, whether you buy currency pairs or buy real estate properties. Different types of risk management techniques are used in different types of investment markets with varying degrees of efficiency. The foreign exchange market happens to be a market where managing risks is extremely easy provided the trader keeps risks in mind at all times.

In fact, a trader can manage risks in two different ways. One is where he manages risks to his individual trades and the other is where he manages risks to his entire account equity. The two layers of risk management can easily counter the majority of potential losses.

Accessibility Benefits

There is no market in the world that is open for a longer period than the foreign exchange market. This is a market that is open 24 hours a day which is in contrast to other investment markets that are only open during working hours. Moreover, while most investment markets are only open on business days, the forex market is open for 5.5 days in a week.

Cannot Be Regulated by Any Entity

Finally, it must be pointed out that the foreign exchange market cannot be cornered or regulated by any entity in the world because of its sheer size and volatility. This means that every trader in the market wins or loses on the basis of his skills.



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