Saturday, June 5, 2010

WHY

Forex trading has surged in recent years, as more individuals earn their living trading and the popularity of riskier investment vehicles like hedge funds has increased. The bottom line for these investors is superior returns, and in foreign exchange four major factors create a unique investment environment:

  1.  Liquidity
  2.  Leverage
  3.  Convenience
  4.  Cost

In no other market can you find a playing field that is so biased to the investor, at least on the surface. But to take advantage of these factors you have to be constantly aware of their downside.
Liquidity
In a liquid market there is a high degree of transparency, even when large transactions change hands. The sophisticated investor understands what this means: forex attracts huge players. As a trader grows in sophistication, they understand that these huge players have significant price impact, and watch for their market entry.
Leverage
The low margin requirements in the forex markets make everyone’s what-if analysis yield forecasts with 1000% growth annually. What those forecasts fail to account for is the multiplying effect of leverage during periods of consecutive losses.

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