The Forex market, also known as the Foreign Exchange market, is used to buy and sell currency pairs.
The Forex market is the largest financial market in the world and averaged 5.1 Trillion per day in 2016. The different types of Foreign exchange markets are made up by banks, central banks, large commercial companies, hedge funds, retail brokers and investors.
Why trade on the Forex market?
One of the great things for traders is that the Forex markets are opened 24/5 and that there is a lot of liquidity involved. This liquidity is very important in trading, and the Stock markets usually aren't as liquid as the Forex market, just like the Stock market can't be traded 24 hours a day and 5 days a week. These benefits make the Forex market very attractive for retail investors, especially for those who have a 9 to 5 job or are still in school because they can trade around the clock. The only exception are the weekends, but if you are a trade-o-holic like us, you might want to take a look at the Crypto currency markets which are open 24/7!
Leverage in the Forex market
Another benefit (as well as a true danger for some people), is the fact that the Forex market has the biggest leverage possibilities for traders and investors.
For instance, if you want to trade on the forex market with a budget of 1000 USD, you can use a leverage option which most of the FX brokers provide. These leverages can reach extreme hights when trading currencies. A leverage of 100:1 is nothing special, meaning that if you invest your 1000 USD with a leverage of 100:1 you actually have the buying power 100.000 USD. The only thing you will have to pay your broker is the 1% margin, which is your 1000 USD.
Now before everybody jumps in and start taking those big leverage loans, be sure to truly understand what taking on leverage means. This could be extremely dangerous, especially in volatile markets.
But those of you who are interested in these types of leverage structures we will provide a seperate post about the pros and cons of leverage in the near future.
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