Forex Investment and Currency Trading

Traditionally FX has not been the most popular market to trade because access to the foreign exchange market was primarily restricted to hedge funds, Commodity Trading Advisors who manage large amounts of capital, major corporations, and institutional investors due to regulation, capital requirements, and technology. One of the primary reasons why the foreign exchange market has traditionally been the market of choice for these large players is because the risk that a trader takes is fully customizable. That is, one trader could use a hundred times leverage while another may choose to not be leveraged at all. However, in recent years many firms have opened up the foreign exchange market to retail traders, providing leveraged trading as well as free instantaneous execution platforms, charts, and real-time news. As a result, foreign exchange trading has surged in popularity, increasing its attractiveness as an alternative asset class to trade.

Many equity and futures traders have begun to add currencies into the mix of products that they trade or have even switched to trading currencies exclusively. The reason why this trend is emerging is because these traders are beginning to realize that there are many attractive attributes to trading FX over equities or futures.

FX versus Equities

Here are some of the key attributes of trading spot foreign exchange compared to the equities market.

FX Market Key Attributes

Foreign exchange is the largest market in the world and has growing liquidity.

There is 24-hour around-the-clock trading.

Traders can profit in both bull and bear markets.

There are no trading curbs.

Instant executable trading platform minimizes slippage and errors.

Even though higher leverage increases risk, many traders see trading the FX market as getting more bang for the buck.

Equities Market Attributes

There is decent market liquidity, but it depends mainly on the stock’s daily volume.

The market is available for trading only from 9:30 a.m. to 4:00 p.m. New York time with limited after-hours trading.

The existence of exchange fees results in higher costs and commissions.

There is an uptick rule to short stocks, which many day traders find frustrating. Trading curbs may be frustrating for day traders as well.

The number of steps involved in completing a trade increases slippage and error.

The volume and liquidity present in the FX market, one of the most liquid markets in the world, have allowed traders to access a 24-hour market with low transaction costs, high leverage, the ability to profit in both bull and bear markets, minimized error rates, limited slippage, and no trading curbs or uptick rules. Traders can implement in the FX market the same strategies that they use in analyzing the equity markets. For fundamental traders, countries can be analyzed like stocks. For technical traders, the FX market is perfect for technical analysis, since it is already the most com- monly used analysis tool by professional traders. It is therefore important to take a closer look at the individual attributes of the FX market to really understand why this is such an attractive market to trade.