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The Benefits and Risks of Trading in the Forex Market

Jun 4, 2008
Anytime an individual engages in investing or trading within any of the different financial markets there are always benefits that can result. However, there are also risk factors that cannot be ignored as well. Speculating for the purpose of profitable gain never occurs without a certain amount of risk being attached to that speculation. And risk factors will vary from very minimal to extremely high.

At the risk of being redundant, the Forex market's rapid climb to the level of success that it is currently enjoying has been attributed to three key factors - namely, the size, structure, and volatility of the currency exchange market. Another result has been higher levels of trading volume and greater liquidity factors that you don't normally see in the other financial markets.

The biggest benefit overall is that the investor can conduct huge trades without negatively impacting the exchange rates or seeing any positive/negative effects on the market in general. The availability of these larger positions has been made possible due to lower margin requirements which the majority of the market's brokers use.

Another benefit is that it is quite possible for an investor to control as much as 100,000 USD while depositing as little as 1,000 dollars up front and then borrowing the remainder from their broker. A 100 to 1 leverage ratio such as this is not uncommon in the Forex market, so leverage is considerably higher in this financial arena compared to that of others.

Consequently, this extreme leverage factor can also act as the proverbial double-edged sword because it is just as easy to encounter massive financial losses as it is to realize tremendous gains when there is only a minimal shift in the exchange rates. But still, it is this leverage factor that makes investing in the currency exchange market such an attractive and intriguing proposition.

A very positive aspect of the Forex market is that it is truly the only financial market that operates on a 24-hour clock. Additionally, the liquidity factor remains decent throughout the global trading day. This is extremely beneficial to the investor who has either a day job or an extremely busy agenda, therefore making this an optimal market to trade in. The following chart will give you an idea how the round-the-clock scenario operates: Time (EST-EDT)

Tokyo opening 7:00 pm
Tokyo closing 4:00 am
London opening 3:00 am
London closing 12:00 pm
New York opening 8:00 am
New York closing 5:00 pm

As you can see from the chart, the trading hubs span a variety of time zones globally, hence the markets 24-hour access factor. This eliminates waiting for the opening and closing bells that are so characteristic of the stock markets and other financial markets. Basically, as one market is closing for the day, another one is just opening for business. Taking all the above factors into consideration, it's safe to say that the Forex market provides more excitement for the investor. On the other hand, the risks involved in this market are considerably higher than when you are trading equities.
About the Author
Justin Stewart has used software to automatically trade the forex market allowing him to earn a living without lifting a finger, even while he sleeps. You can use the same forex software to get the same results.
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