Forex is a growing market, especially among online trading beginners. It's a market with a long history, although it has only recently taken on a character that, albeit with some hesitation, can be defined as "mass-market".
Why do people like Forex? Is it just a trend? The reality is more complex than one might imagine, especially since the currency market has been riding the wave for more than a few years, so
it cannot be considered a passing phenomenon.
In this article, we discuss the reasons why Forex is rightfully preferred to other investment markets, despite the difficulties that characterize attempts to generate profit by trading currencies.
Forex Liquidity
Forex is the most liquid market in the world. It's a surprising truth, especially for those who, perhaps as beginners, have always considered the
stock market as the queen of the market. But no, at least from a liquidity standpoint,
Forex takes the lead.
According to recent estimates, Forex generates
a daily turnover close to 3 trillion dollars. This is a staggering figure, which just to give an idea, is equivalent to 120% of the Italian public debt (and in just one day!), which is the third largest public debt in the world. In short, we can say that the most important characteristic of Forex, its true distinctive feature, is its immense liquidity.
This, aside from the numbers, determines some advantages for the broker. This liquidity on one hand protects the market from manipulation attempts, and on the other hand ensures a high probability that each person's orders will actually be executed, and that there will be
a counterparty that can allow the execution of the order. In turn, this frees Forex traders from having to rely on Market Maker intermediaries, who impose additional costs, albeit largely justified by the service they provide.
Forex Trading Hours
The issue of trading hours is another peculiarity of Forex. Unlike many markets, such as the aforementioned and well-known stock market, Forex is
almost always open. That is, it is not technically bound to a trading session. Specifically,
it is possible to trade currencies 24 hours a day, 5 days a week. Obviously, the issue is complex, as the fact that it is possible to trade at all hours does not imply that it
is good to do so. This is also because currency quotes depend on economic activities, which are bound by trading hours. Obviously, the situation needs to be analyzed currency by currency.
However, the fact that currencies are technically unbound in terms of trading hours poses a decisive advantage for the trader. Potentially, but often in practice, the number of opportunities that Forex offers is incredibly high. Ideally, it is possible to profit
always with Forex, even at two in the morning.
Read:
- Forex Trading Hours: Here's When Forex Markets Are Open
- Forex Trading Hours: When to Avoid Trading
- At What Times is the Forex Market Most Volatile?
Forex Volatility
Forex is a moderately volatile market. This volatility depends partly on liquidity but also on the intrinsic characteristics of currencies. These, in fact, are characterized by a relationship of interdependence and dependence not only on exchanges (as is normal for an investment asset)
but also on what happens outside. In short, Forex boasts a very high number of market movers. Moreover, almost like the stock market, currency market investors are involved in intense emotional and psychological dynamics. This, without fear of contradiction, significantly stimulates volatility.
Is volatility a plus? Within certain limits, surely yes. Also because when practicing online trading, regardless of the asset, profits are generated when there are discrepancies in terms of pips, that is, when the price moves. Obviously,
volatility must not be excessive, and it can be said, certainly with all due caution, that in Forex volatility is significant but not dramatic. Under certain conditions, volatility appears to be "balanced".
Forex Readability
Here is another advantage that Forex rarely shares with other markets. Forex is a fairly readable market. That is, there are elements that allow investors to sense how the price will move. Obviously, we cannot speak of prediction, but of reading the price, even in a future perspective, yes. This is an important step as it frees the trading activity from dynamics that could liken it to gambling, and instead brings it closer to dynamics that suggest an approach that is as scientific as possible.
Forex, let's be clear, is readable yes, but not at the level of the stock market. Also because the analysis of the stock market can take place at several levels. Not only that relating to market movers and exchanges (as in Forex) but also that relating to individual issuing companies.
However,
Forex is endowed with good readability. The relationships between currencies depend on many market movers, most of which are activated in a regular and periodic manner. In addition, currencies, precisely as investment objects, are the result of analyses by experts, which are often made public, either in papers or in simple articles on blogs and specialized magazines.
Diversification in Forex
This is a very important aspect of Forex. Often, it is considered as the real weak point of the currency market. Some think that the main defect of Forex is the impossibility of achieving proper diversification. Diversification, regardless of the type of investment, is very important as it allows for risk containment and profit optimization.
Forex, being composed of a limited number of currencies, would not allow for good diversification.
This sentence, in reality, represents the classic myth to debunk, or rather photographs a situation that concerns the past, which no longer corresponds to today's fact.
Nowadays, the currencies that brokers make available are numerous, and moreover, they are growing. This has brought about an increase in the degree of heterogeneity of the currency market, in a certain sense paving the way for diversification that could recall that of the stock market, which is basically very effective. So, yes: even in Forex it is possible to diversify.
