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3 reasons which makes Forex worthy of trading

Posted By On 5/23/2008 11:54:00 PM
1. Forex stands for Foreign exchange market and one can call it a perfect market as it does not have any geographical boundaries and is functional round the clock.

2. One can say that foreign exchange market is the largest market as it is functional simultaneously and it does not have any centralised location unlike the Futures trading market. One will be surprised to note that its daily turnover since 1977 has increased from mere $5 billion to a whopping 2.5 trillion US dollars and is increasing every day. One can say that combined turnover of Forex market is 100 times of Nasdaq.

3. It consists of 6 major currencies namely Japanese, Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar and the spot business is undertaken between US dollar. Now one has the ability to trade in number of currency pairs and can also trade in gold and silver.

4. It is a worthwhile fact to note that since Forex market is spread across the continents and thus not even a single individual or a government can have an impact on the market unlike equity where a few like minded persons can cause the market to fall or rise as per their whims and fancies by virtue of their collusion of same interests.

5. Forex is trading of contracts of currency pair exchange rate. It is a NON-DELIVERY trade. It means that this transaction is undertaken on the basis of margin and no physical transaction of currencies takes place. Thus if the currency pair exchange rate has changed by some percentage, the value of the MARGIN invested would accordingly change. One can take a call in any direction say either to BUY-EUR or to SELL-EUR in a EUR-USD deal and as a net result can profit from the direction of his call in casse the forex trader was right.

6. Generally margin is in ratio of 1:100 and we can understand this with an example that one can buy Eur 100,000 against USD, on an exchange rate of 1.3500 and thus one has to only pay a amrgin of $100 and if the exchange rate goes up say to 1.3620 which is normal i.e. an individual has made a gain of 0.89% and as a result of margin his profit gets multiplied by 100 times. The best part of this strategy is that one can loss maximum of the deposited margin amount only and thus one is hedged against sharp losses whereas the profit potential is unlimited.

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