Foreign Exchange Markets

The foreign exchange market or the forex market as it is more popularly known is one of the most exciting and fast paced financial market

. The market has seen large scale entry of individual investors, which until the recent past was the domain of large financial institutions, leading world banks and hedge fund operators. Because of the strict qualifying parameters imposed, only a few wealthy individuals had access to the foreign exchange trading markets.

The advent of technology has changed all that dramatically. Now, you can trade in forex from the comfort of your homes if you have a computer and net connectivity. With an online brokerage account you can easily buy and sell currencies with the click of a mouse.

Unlike equity and stock markets, the daily fluctuations are very minute in a foreign exchange market. The foreign exchange trading is done in pairs and many pairs move less than one percent in a day. The enormous leverage offered by the brokers to the foreign exchange traders helps them invest in huge volumes to make up for the low volatility.

In a normal market, high leverage is perceived as something that is extremely risky. However, in a foreign exchange market because of the deep liquidity and round the clock trading, brokers have been able to make high leverage a norm of the industry so that traders can have meaningful returns on investments.

The forex markets offer a high degree of flexibility. Extreme liquidity and high levels of leverage has helped the market grow dramatically and help traders make enormous profits. Trade positions can be opened and closed within minutes or can be held for months. The forex market is a safe place to trade because currencies cannot be subjected to large scale manipulations and riggings which is a common feature in an equity or derivative market.

Because of the global size of the market, there is little possibility of even banks and financial institutions making even a small dent in the trading prices of currencies. They are based entirely on the demand and supply situation.

The forex markets offer plenty of opportunity to investors. However, to be successful one has to understand the fundamentals of the currency moves and the nuances of the trading process.

Foreign Exchange Markets

By: Michael Caine

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