Thursday, September 30, 2010

Forex Market

You have probably heard the term Forex before. It refers to the global foreign exchange market or currency market. It is the largest financial market on the planet and its daily turnover is close to $4 Trillion and it keeps growing. The Forex market is not only the largest financial market, but at the same time the most liquid market. Those two factors alone are reason enough for any portfolio to be invested in the Forex market. It offers a great resources to complement any trading style and portfolio management strategy.

The number one purpose of a portfolio is to generate returns, short-term as well as long-term. Those returns need to be consistent returns in order to be able to depend on the portfolio. The idea, especially for small retail investors, to purchase equities especially through participation in mutual funds is ludicrous. The Forex market offers a great, if not the greatest opportunity, for investors of any size.

Here are some facts and figures about the Forex market

1. Daily turnover close to $4 Trillion and growing
2. High liquidity
3. Operates around the clock except for weekends
4. Low margin requirements
5. High leverage potential
6. Very competitive
7. Global center for foreign exchange is in London, about one-third of all transaction are accounted for there

Keep in mind that the Forex market is a speculative market, and the same degree of risk applies as with any other market. Risk is simply the lack of knowledge and in order to enjoy the countless opportunities presented in the Forex market you need to understand the market. The conditions of the Forex market comes close to perfect competition, but since perfection does not exist there is a minor drawback often temporary. Central banks may interfere with exchange rates due to the stupidity of politicians and policy makers.

Those market manipulation moves have a strong ultra-short term effect. Exchange rates will be manipulated, but effects can diminish as fast as they arose and often provide great opportunities as well. 

Photo Credit: The picture in the top left corner was created by renjith krishnan and downloaded for free use at freedigitalphotos.net.

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