Foreword
With its massive trading size of $5.3 trillion/day and its extraordinary liquidity, the currency market is undoubtedly fast paced and exciting as well as an excellent venue for making money. In fact, such is the allure of this market and its contribution to the world of commerce and investments that everybody from retail players to central banks and from hedge funds to companies involved in cross border trade, invest in foreign exchange.
Till about a few years ago, currency trading was only open to those who had millions in available capital.
However, the proliferation of the internet has not only changed the world as we know it, but also the way in which people invest. Today, currencies are traded at the click of a button by traders from all over the world.
Given the size of the forex market, the daily fluctuations can be miniscule at just 1%. Actually, most currency pairs seldom show a movement of more than 1 cent per day, which typically amounts to a less than 1% change in the value of the currency. In light of the price movement, foreign exchange is the least volatile of all investment markets. So, a single trade may not seem profitable at first glance.
However, the availability of enormous leverage, which can go up to 250:1 or even 500:1, depending on the broker, helps in raising enough capital to earn significant returns. Add to this the fact that currencies can be traded round the clock and that positions can be held or liquidated within minutes or even months to suit the investing style of the trader, and it is easy to understand the rapid growth in the popularity of the foreign exchange market.
Furthermore, the gigantic size of the currency market does not allow for the moves of a few large players to impact the performance of foreign exchange. Although trader psychology and market perception do play a role in price movements, the values of currencies are based on objective factors such as supply and demand.
Without a doubt, the Forex market can open up a world of earning opportunities for savvy investors, but jumping in without doing your homework will be akin to gambling. This market can be unforgiving to those who don't have methods backing their moves. So, before you consider investing your money in currencies, it would help to learn a few basics.