Advantages of the Forex Market

What is the Forex Market ?

 The Forex market is the trade arena which allows investors to trade foreign currencies throughout the trading day. This market is the largest in the world and has a daily turnover of 3 trillion USD.

 The market is active 24 hours a day, 5 days a week. The value of the currencies changes every moment throughout the day according to supply and demand levels.

 The Forex market is the most secure medium of investment in the world, in comparison to other channels with a risk factor, such as: stocks, options, bonds and more.

 Just as in a regular market we buy and sell vegetables and in the stock market we buy and sell stocks. In the Forex market we buy and sell currencies, this is our product. There are more than 100 currency pairs in the world which can be traded.

 Currency exchange rates are uniform throughout the whole world. If the exchange rate of the Euro in relation to the USD is 1.5220 in London, it will be 1.5220 in Congo, New York, Australia and Hong Kong.

 The Forex market is largely composed of speculators. Speculators are people like me, or perhaps like you, who buy and sell currencies to profit from the change in the exchange rate of a currency. Only five percent of the transactions are for real purposes of commerce such as: industry, tourism, etc. The remaining 95 percent are for speculation purposes.

This is the zero-sum game: the total gains are equal to the total losses. 

What affects the Forex market?

 The Forex market is affected solely by macroeconomic data, not by microeconomic data. What is macroeconomic data? Raising of the interest rate in a country, the unemployment rate of a country and political conflicts within the country. On the other hand, microeconomic data are the balance reports of a very large company in the country, a large business deal which a large company is about to execute and/or has executed, and more.

 The microeconomic data does not interest the Forex market and does not affect it.

 In other words, the Forex market is affected by large-scale and international events.

 The Forex market is comprises of: currencies and commodities. Today, some brokers also allow trading of indices, futures contracts and certain stocks.

 All the strategies and technical analyses that you will learn here are relevant for currencies as well as for commodities.

 Before we learn what an exchange rate is and how we buy and sell currencies, let's understand more clearly the advantages of the Forex market based on the characteristics which I have presented so far: 

The Forex market has 2 principle advantages:

The first advantage is: liquidity. 

 Have you ever bought a stock and couldn't sell it a specific moment? 

Example: You have bought a particular stock. The stock had risen greatly in only a few months and all of a sudden the CEO resigned, at that moment there was a pause in the trade which lasted a few hours, and the next day the stock decreased by 10%.

 You are stuck with the stock!

 In the Forex market such a thing would never occur.

 If you have Euros, Pounds, Swiss Francs or any other tradable currency, you can sell it at any point in time.

 You will never get stuck with a currency, and this is a great advantage of currency trading. As traders, it doesn't matter what you buy, what important is that at any moment you can cash in your goods – there will always be a buyer.

 There is one very important rule to remember: Until you cash in your goods, there is no knowing whether you have gained or lost.

The second advantage is: In the Forex market there is no control by external financial bodies. 

 A speculator, as great as he/she is, cannot influence the exchange rate.

Central banks intervene in the trading once every decade and are successful in effecting the value of the currency by a total of two percent, a movement of this kind lasts for only a few hours and then the exchange rate returns to its natural price.

 This goes to say that currency trading is fair, and no body, as large as it may be, can affect the market.

 On the other hand, in the case of stock and options, a large broker has the ability to inject tens of millions of USD and by doing so they can change the price of the stock by tens of percentage points – and unfortunately they do so from time to time. 10

What advantages do we have in a market which is influenced by macroeconomic data and not microeconomic data? 

The first advantage – it is much easier to follow and trade, due to the availability and minimal amount of data.

 For stocks, for example, there are many factors which must be followed. 

 Imagine that you own 4-5 stocks in the NYSE. Let's assume that you are serious investors, not gamblers.

 You have to know who the shareholders are in every company you invest in, what the multiplier is, what the balance sheets look like, the gains and losses report, internal information, such as, for example, resignation of an executive, a large future contract, and so on and so forth. One must know so much information that following them on a daily basis would require many hours each day.

 In the Forex market there are five to six significant data in a month. The firm through which you trade will provide you with these data in real time, and you, with the knowledge that you will gain, will trade accordingly.

 Do you understand the significance? 5-6 pieces of significant information in a month, that's all. You won't have to live in constant chase after changes in companies in which you invest.

The second advantage – the important information reaches everyone at the same time. 

 Let's assume that I am the marketing manager of a large pharmaceutical company, and I am on a flight returning from China, and in my hands is a closed contract with the government of China, a contract which is expected to increase the profitability of the company by 100 billion USD a year.

 Who knows about the deal? myself, the CEO, his wife and her brother. And they don't do anything with that knowledge, right? 'laughter' You made me laugh!!!

 Until it is reported in the news that a huge deal took place with China, there are people who already know, who have made use of it, and the price of the stock already reflects the news. You will be in the second level of decision makers.

Haven't you ever met someone who told you that he/she bought a specific stock based on insider information and the next day it rose by 20%? Yes, yes… it happens...

In the global foreign exchange market, when the American federal reserve Governor publish a decision to increase the interest rate, the whole world knows it in the same exact second and can respond immediately – to buy or sell the USD. There is nobody who has insider information beforehand and who make use of it in an unfair manner. 

Market research and analysis 

The two main approaches for analyzing the movements in the Forex market are the “fundamental analysis” approach and the “technical analysis” approach.

 The fundamental analysis focuses on financial and economical theories, as well as political developments, to determine the forces of supply and demand. 

The technical analysis focuses on price levels and trade volumes, and from these data expectations are formed for future levels of the market.

 The main difference between technical analysts and fundamental analysts is that the fundamental analysts concentrate on causes of movements in the market, whereas technical analysts concentrate on the effects of movements in the market. 
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