An Introduction to Investing in the Forex Marketplace
The financial markets were traditionally associated with male traders. Even relatively contemporary films such as Wall Street and Margin Call seem to preclude the presence of women within such fast-paced financial environments. The good news is that times are changing.
It is now quite common for women to become actively involved within the world of investing. Thanks in no small part to the presence of digital trading portals, it has never been easier (or more lucrative) to capitalise on numerous opportunities. Forex investments are particularly popular, and there are several benefits to highlight. Those who are considering such a venture should therefore appreciate a handful of fundamental principles. Let’s jump right in.
What Exactly is the Forex Sector?
The term “Forex” is an abbreviation for FOReign EXchange. This industry is concerned with the relationship between various pairs of fiat currencies. Here are some typical examples:
- USD/GBP
- GBP/EUR
- EUR/JPY
- USD/CHF
While many educational articles tend to delve into more complex undercurrents, this simple definition of Forex trading will serve our purpose at the moment.
What are the Benefits of Investing in the Forex Marketplace?
Why are the Forex markets home to well over 14 million investors of all sizes? There are many ways in which this question can be answered, and it pays to take a closer look at some of the primary advantages that can be enjoyed by those who possess the knowledge.
24/7 Availability
It has often been said that the “Forex markets never sleep”, and this is absolutely true. The Forex industry is active 24 hours a day and seven days a week. This can accommodate the schedules of part-time traders as well as full-time institutional investors. The same cannot be said for other indices such as the DJIA (Dow Jones Industrial Average) or the UK FTSE.
Flexible Positions
Another core feature of any Forex position is known as the spread. A spread in Forex involves the difference between the buy and sell prices. This can sometimes be referred to as the bid/ask spread. Why are spreads so important? Spreads essentially represent the cost of performing a transaction in relation to the potential profit. An example will help to cement this point.
Imagine a trader who feels that the United States dollar will gain value in relation to the Euro. She might choose to open a USD/EUR Forex position. It will then be important to determine the spread between these two currencies. Spreads can generally be classified in one of two ways:
- Wide spreads
- Close (tight) spreads
Wide spreads tend to be better for those who wish to secure medium-term positions, as smaller fluctuations between the bid and ask price are not likely to have a massive impact on one’s position.
On the other hand, tight spreads are generally suited for short-term traders. The price of one currency (such as the dollar in this case) could quickly move beyond the initial spread; resulting in a net profit. Note that trading costs are also lower when executing short-term positions.
In other words, the Forex markets can accommodate various types of investment styles.
The Liquid Nature of the Forex Marketplace
Experts will often cite the inherent liquidity of the Forex markets as their most advantageous feature. Unlike traditional blue-chip shares and certain commodity positions, trades can be executed within a very short period of time. This may result in substantial profits. However, it is equally wise to point out that high levels of liquidity could also contribute to volatility; increasing the chances of a loss. Risk tolerance is therefore an important variable to define at an early stage.
Access to Institutional Trading Platforms
Finally, it is always possible to partner with reputable institutional trading platforms. These services can cater to those who wish to invest large sums of money, or businesses that hope to take advantage of the aforementioned liquidity. Working in tandem with such Forex brokers will likewise provide access to professional wealth management specialists; an excellent way to mitigate potential losses that might otherwise occur.
A Host of Options to Explore
It is now clear to understand why the Forex markets have attracted so many investors. Those who wish to learn more should perform additional online research, or contact a well-established trading firm.