8 top reasons why people want to trade in the forex market

By now you should have probably heard of the foreign exchange (forex) market, perhaps as part of a sales seminar in your local airport Hilton. You have seen the slide shows, heard the claims and shook your head in wonder when you pondered the vastness of this enormous market. Then you returned home to trade in markets you know and love. But some part of you still questions if you should look into forex, and if so where should you start?Let’s take a moment to review the reasons you might want to trade in this wild and crazy market.Diversification: You’ve heard the old adage about putting your eggs in one basket, right? The long and the short of it is that you should not. Like many other Americans, I have a 401(k), a bit of real estate, little bit in a managed fund, a checking account or two and a money market fund. The bulk of my assets tend to be based on the U.S. dollar and economy. That is not necessarily a good thing.Let’s consider a worst-case scenario. If Utah, where I currently reside, had a catastrophic event, then my property values would probably tank. I have insurance, but I get the feeling that one doesn’t really know the extent of one’s coverage until one actually needs to use it. So I may or may not get the insurance money to cover what I feel my property is worth. Let’s go one step further and add insult to injury and suppose that the U.S. stock market hits a reversal. As a result, my other assets start to slide. This would be a potentially rough way to find out that my portfolio isn’t as diversified as I had thought. So, for me investing in the forex market is an attractive way to diversify my meager portfolio.One of the benefits of trading currency is that I could easily invest in another country’s currency without driving 12 hours north to Canada to open a bank account for storing my “loonies.” With the click of one or two buttons, I can place my confidence in the euro, yen or a number of other currencies from around the world. Now, if the worst case scenario hits and the stock market takes a little dive, there is a possibility that I can make a gain on other currencies.24-Hour Trading: It is hard to day trade stocks without giving up your day job, and that certainly wasn’t an option for me. Like many others, I usually scramble home from a long day at work, fix and eat dinner, hang out with my child and peer at my charts a little before shuffling off to bed. Trading in a market with fixed hours seemed impossible for me. If there did happen to be a good trade on the horizon, I would have had to squeeze placing orders into the morning rush of snoozing the alarm, getting ready and gulping down that first cup of joe. It was enough to make me throw up my hands and reach for the nearest money manager.As a contrast, the forex market is open 24 hours a day, five and half days a week. This means my two hours of chart watching in the evenings can be accompanied by actual trading. In fact, I have heard from numerous traders that the best time to trade is the middle of the night. I am not sure how this works since I have heard it from people in Australia, England and in all U.S. time zones. I have found that no matter what the time zone, there always are trading opportunities, making the forex market particularly convenient for people like me who are living life as well as trading.Volatility: One of the other things that interested me about the forex market is the volatility. No other market exhibits the schizophrenic behavior of the currency market. This means that the hour or two I spend trading every evening can bring about some lucrative results. Remember, though, that loss is equally possible, and as I like to tell my husband, margin calls are not a valid stop loss strategy.Liquidity: The likelihood of being able to get into and out of trades at any given time during the day or night is very high in the forex market. Literally, hundreds of thousands of people are online every second during the market hours buying and selling currencies. The market itself trades approximately $1.9 trillion every day.Low Fees: The forex traders cost of doing business is called the spread. The spread is essentially the difference between the price you can buy the currency and the price you can sell the currency (the “bid” and the “ask”). For example, if you have a bid price on the EUR/USD of 1.2733 and an ask price of 1.2735, you are “paying” a two-pip spread. You do not have to pay other commissions or hidden fees. If you do, conduct a search for forex brokers, because you may have the wrong one.It works a little like this: If I placed a buy on the EUR/USD at 1.2733, I won’t see a breakeven point on the trade until the price moves to 1.2735. So, if I were trading a mini account, I would see a -$2 on that particular trade (my account is held in USD, if I had an account in some other currency that value might be a little different). Once the price moves to 1.2735 my profit comes out of the red and heads for the green.Ease: Let’s face it, getting started in forex trading is easy, sometimes too easy, but I will get back to that. The barriers to entry are low and in most instances, you can open an account online in a matter of a day or two. Then you pop a check in the mail and are ready to hit the big time. Most forex brokers will let you open a mini account for as little as $250, and because of the leverage inherent in this industry, you can be off and trading large amounts of money in no time.Increased Leverage: Leverage is sort of like a promissory note from your broker. In its basic form, it enables a trader with 200-to-1 leverage to have $50 in margin controlling a $10,000 position in the market, or 0.5 percent of the position value. The substantial leverage that is available to online forex traders can be a powerful money-making tool. The need for so much leverage is due to the price stability and liquidity associated with the market. These factors result in an average daily percentage movement of about 1 percent on major currencies, compared to the volatility of the equities markets that can easily have movements of 10 percent a day.No One Person or Economy Controls the Market: The forex market has no physical, central exchange. In fact, it is so vast and has so many participants that no single entity, not even a central bank, can control the market price for an extended period. Even interventions by mighty central banks are becoming increasingly ineffectual and short lived.On Your Marks, Get Set…So you have made the decision to take the plunge and trade in the most volatile and exciting market out there. Now what? To say there are a lot of forex brokers out there is a bit of an understatement. I heard an estimate last year that the foreign exchange industry is growing at 20 percent to 25 percent a year. As the market grows, so do the number of less-than-reputable firms. Just a few months ago, a probe into the biggest foreign exchange scam in U.S. history concluded with a $33 million fine.Most criminal schemes have some tell-tale signs and can be identified by experienced traders; however, newer speculators may have problems spotting the difference between legitimate and fraudulent enterprises. I strongly recommend thoroughly researching any potential companies with which you are considering investing before sending in your hard-earned cash.I am constantly surprised by how people will send off checks to companies that promise the moon without doing even the smallest bit of due diligence. These are rational people who research their purchases thoroughly, read consumer reports and weigh their options carefully about things such as schools, homes, even banks and, yet, somehow are blinded by the promise of easy riches. Finally, find out if the company you are considering is under investigation for fraud or has been convicted of fraud

To your success,
Abraham Ekedum