Advantages of Trading Forex
Trading foreign exchange can provide portfolio diversification benefits to investors holding equity and fixed income assets. The foreign exchange markets are historically uncorrelated with asset markets. They may offer attractive trading returns when stock and bonds markets are in bearish or trendless states.
Unlike domestic markets, which are only open during specific times of the day, the global FX market is open 24 hours a day. This schedule provides plenty of flexibility for investors to react to market events as they occur and to trade on their own schedule.
Another advantage to the foreign exchange market is that it is one of the easiest markets for people to access around the globe. Depending on local regulation and a potential traders sophistication level and net worth, foreign exchange can be traded directly with banks and via FX brokers. In addition foreign exchange based futures and options are listed on exchanges and can be accessed through futures and securities accounts respectively.
Another advantage to investing in the foreign exchange market is the ability to gain leverage. Leverage is the ability to borrow and control more money than your initial investment. For example, if you were to invest $1 with 1:50 leverage, then you would only deposit $1 into an account but have returns as if you had invested $50 initially. How this relates to FX, is that in the FX market it is common to have high amounts of leverage when investing, where as other markets have much lower amounts of leverage normally used.
In the stock market it is common to use no leverage at all. Be careful though because even though returns are multiplied with leverage, so are risks and transaction costs.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.