Forex Trading: Is It Worth It?

Investors have naturally heard of the New York Stock Exchange or the Nasdaq 500.  Perhaps they are familiar with index funds, the intricacies of IRA rollovers and a host of other investment strategies.  However, when it comes to Forex trading, many people are not as aware of the possibilities of this sort of investment – or that the investment strategies that served one well in the past might need to change.

First, a quick explanation of Forex market.  The foreign exchange market is actually the largest market in the world if one goes by trading volume.  The market specifically focuses on the buying and selling of currencies, bringing a whole new meaning to the term “money market.”  Trading is primarily conducted using a financial institution, though a few insurance companies also specialize in Forex trading.  Despite being the largest trading market in the world, very little is known about Forex trading by the average investor.  So naturally, the question arises:  is it worth it?  The answer, invariably, is yes.

One of the main reasons Forex trading is worth it is because of the high liquidity rate.  Investors are, after all, dealing with currency.  Trading happens by changing one form of currency for another.  Unlike other stock exchanges or investment products, there is no limit to which you can sell currency and no such thing as “insider trading.”  The market does not have commissions, unlike other brokerage firms, and trading can take place 24 hours a day except on weekends. That means for savvy investors, you are not limited to the standard working hours of typical exchanges.

Even better, while you might imagine all the currencies in the world leading to too much research and not enough time to accomplish it all, that actually isn’t true for Forex trading.  95% of all trades are actually made up of only a few currencies, and the ones most investors are familiar with are the primary investment tools.  If an investor is at all familiar with the British pound, American dollar or the Euro, that covers a good bit of what combinations and liquidity is available in Forex trading.

Forex trading also means that you get to take advantage of leverage.  A simplified way to understand this is to realize that leveraging your position means you can put down a smaller sum, but invest as though you were playing with a larger amount of money.  Obviously this comes with its drawbacks.  The payout, however, can be enormous!