Foreign exchange, popularly known as forex or FX for short is a marketplace for trading the world’s currencies and it also doubles as the largest financial market (even larger than the stock market) in the world today with a daily volume of $6.6 trillion, according to the 2019 Triennial Central Bank Survey of OTC and FX derivatives markets. However, forex trading wasn’t as popular as it is today in the ’90s or ’80s; so what happened? Why the sudden boom of interest in the forex market. To find out, continue reading.
Reasons why the forex trading is so popular
Availability
Forex trading is available to everyone and to start trading all you need is a smartphone, computer, or laptop and Internet access. This means that in order to trade, you don’t have to visit a trading office close to you. Additionally, you don’t even need to have capital before you can start trading on any popular forex trading exchange because most of them offer their users a demo account that they can use to develop their trading skills.
Asides from forex, access to other financial markets are difficult. Forex gained huge popularity due to its simplicity. What’s more? Information on forex trading or training at any level is available to everyone and you don’t need to have a huge start-up to start trading as the start-up capital can be minimal.
Market liquidity
Since forex is one of the largest financial markets in the world, forex trading has the potential for fast returns and high gains. This can be attributed to the liquidity opportunities provided by the huge volume of currency being traded at any time. However, that adds to its volatility and increases the risks involved as well. But with the right trading strategy, traders can benefit from it and make significant profits from their capital.
Also, the number of currency forex brokers and investors, buying and selling daily affect the market movement. Unlike other markets like stocks and commodities, the forex market has no central exchange (it is decentralized); that means that all the trades take place through a global network. Due to that ease of access, individual investors can react to the market movement and the influences from economic or political factors entering and exiting the market accordingly.
Hence, the returns of the forex market are particularly rapid and that makes short-term strategy efficient or effective (i.e., it works well or favours short-term strategy) which differs from other financial markets where you’ll have to wait for the organic asset value growth.
Leveraged trading
Forex trading works well with leverage trading since it’s usually traded with a huge amount of currency and a large position size. Leverage makes it possible for you to open a position on a larger portion of the forex market without investing the full amount.
This means that a smaller amount of money than what is traditionally required can be used, yet you are still exposed to the market at the same value as the full amount. Hence, you can also agree that trading currencies this way is an effective way of using money as it makes it possible to see an incredible difference in the gains from the trade when the market moves in your favour.
However, it’s important that you take out time to fully grasp leverage trading, and understand how it works and how you can benefit from it because it has the potential to magnify your profits and also your losses.
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