The forex market is a place to get burned — or get wealthy

When someone with money for investment is able to put it in a somewhat risky vehicle, the forex market is quite possibly the best available place. It’s the world’s largest trading arena. Nothing comes anywhere near its size. And it’s always open for business, is a low-cost environment, delivers wins or losses within minutes, and its returns (either in your favor or against you) are often large.

Actually there are three distinct market in the forex market. They are: the spot, the forward and the future forex markets. It is difficult to even conceive how much money is traded in these markets each day. The sums are truly staggering. And while it is hard to put a handle on exactly how much, the Bank for International Settlements calculates that around $2000 billion goes through these forex markets every day. Let me say that again … something like $2000 billion every 24 hours. And none of the transactions are going through a central exchange. The trading is done by individuals all over the world.

If you’re a small (retail) investor you will almost certainly choose to buy and sell forex in the spot market. Prices there are influenced by supply and demand, of course, but that is determined by simple things like the country’s political situation, its economic performance and interest rates. There’s no rocket science here. These are things that the average person can understand and follow easily. What’s more only eight world currencies are traded in the forex market. They are the big ones: the Swiss franc, Japanese yet, British pound and so forth. This is a small number to keep abreast of.

Buying and selling forex, then, is quite different to trading stocks. What is most strikingly different is that in the forex market, traders use the power of leveraging. Investors can put up a very small amount of their money together with a brokers much larger sum and be looking at a trade of, say $200,000, even though his part of it is only $2000. Even small moves up are significant when the trade is leveraged like this. Because the move is mirrored in the total trade, not just the one percent contributed by the investor in our example. But what happens if the change is in the wrong direction? They will lose, and even a small change could easily mean they lose everything they have. That is the power of leveraging. It’s also why trading in the forex market is so compelling for small investors.

Add to this the fact that there are almost always buyers or sellers in the forex market. Trading is always going on in the forex market and so the quiet, inactive periods that plague other markets is just not a factor here. There will almost always be a buyer. (How different to the stock market. It’s often not possible to find serious, competitive buyers when a share price is falling. ) And for all these reasons forex investment is very attractive for investors with some risk capital.

About the Author

Len McGrane writes about forex investment at

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