The Foreign Exchange market (FX) is the largest, most liquid financial market in the world, roughly 20 times larger than the combined volume of all U.S. equity markets with a daily trading volume over 3.21 trillion dollars. In years past, the world’s largest commercial banks have dominated the FX market, offering Interbank dealing spreads to only their largest customers. With the advent of online trading, both retail and smaller institutional participants now have access to this market.

Market Liquidity

The Forex market is the most actively traded market in the world, 24 hours a day from Sunday night until Friday afternoon. This liquidity provides currency traders with the ability to enter and exit trades regardless of the size of the transaction.

Ability to profit in Bull or Bear markets

Unlike the equity market, there is no restriction on short selling in the currency market. Profit potential exists in the currency market regardless of whether a trader is long or short, or which way the market is moving. This means a trader has equal potential to profit in a rising or falling market.

Low transaction costs

The Interbank market eliminates exchange and clearing fees, which in turn lowers transaction costs. The efficiency created by a purely electronic marketplace enables clients to directly deal with the market maker, eliminating both middle men, and ticket costs. The currency market offers round the clock liquidity providing traders with tight interbank spreads during both intraday and overnight trading.

Trending market

Currencies rarely spend time in tight trading ranges and have the tendency to develop strong trends. Much of the volume is speculative in nature, and a technically trained trader can easily spot new trends and breakouts, which provide many opportunities to enter and exit the market for profit.

Leverage

Leverage is the use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment. The leverage available in Forex trading is one of main attractions of this market for many traders. Leveraged trading, or trading on margin, simply means that you are not required to put up the full value of the position.

Forex provides more leverage than stocks or futures. In Forex trading, the amount of leverage available can be up to 100 times the value of your account. There are several reasons for the higher leverage that is offered in the Forex market. On a daily basis, the volatility of the major currencies is less than 1%. This is much lower than an active stock, which can easily have a 5-10% move in a single day. With leverage, you can capture higher returns on a smaller market movement. More importantly, leverage allows traders to increase their buying power and utilize less capital to trade. Of course, increasing leverage increases risk.

Analysis Overload

The equity and futures markets offer an incredible selection of different investments to choose from. There are literally tens of thousands of stocks and mutual funds, and hundreds of commodities to trade. The Forex market is much simpler to monitor. You really only need to keep track of 5 different currencies, the Euro, the Yen, the British Pound, the Swiss Franc, and the US dollar. The 2 other major currencies traded are the Australian and Canadian Dollars, leaving an analysts with at the most 7 currency pairs to study.