Forex is a growing market, especially among online trading novices. It is obviously a market with a long history behind it, although only recently has it taken on a character that, admittedly with some hesitation, can be defined as "mass".
Why do people like Forex? Is it just a fad? The reality is more complex than one might imagine, also because the currency market has been riding the crest of 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 rightly preferred to other investment markets, despite the difficulties that distinguish attempts to generate profits by exchanging currencies.
The Liquidity of Forex
Forex is the most liquid market in the world. It is a truth that strikes, that surprises especially those who, perhaps as laymen, have always considered the
stock market as the queen of the market. But no, at least from the point of view of liquidity,
Forex holds the primacy.
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, apart from the numbers, determines some advantages for the broker. This liquidity on the 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 therefore 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, which impose additional costs, however widely 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 already mentioned and well-known stock market, Forex is
almost always open. That is, it is not technically bound to a market 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. Also because currency quotes depend on economic activities, which are in fact bound by schedules. Obviously, the situation should be analyzed currency by currency.
In any case, the fact that currencies are technically unbound in terms of 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 earn
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
- During Which Hours is the Forex Market Most Volatile?
The Volatility of Forex
Forex is a moderately volatile market. This volatility depends in part 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 point in favor? Within certain limits, definitely yes. Also because when practicing online trading, regardless of the asset, profits are generated when there are differences 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 important but not dramatic. Under certain conditions, volatility appears to be "balanced".
The Readability of Forex
Here is another point in favor that Forex rarely shares with other markets. Forex is a fairly readable market. That is, there are elements that allow investors to intuit 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 trading activity from dynamics that could liken it to gambling, and instead bring it closer to dynamics that suggest an approach that is as scientific as possible.
Forex, to 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 on several levels. Not only that relating to market movers and exchanges (as happens in Forex) but also that relating to individual issuing companies.
In any case,
Forex is endowed with good readability. The relationships between currencies depend on many market movers, most of these are activated regularly and periodically. Furthermore, currencies, precisely as investment objects, are the result of analysis 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. There are those who 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 you to contain risks and optimize earnings.
Forex, being composed of a limited number of currencies, would not allow for good diversification.
This sentence, in reality, represents the classic myth to be debunked, 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 very 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 a diversification that could recall that, basically very effective, of the stock market. So, yes: even in Forex it is possible to diversify.
