■ 24-hour trading: Traders benefit from the ability to respond to breaking news immediately, day and night.
■ Superior market liquidity: More than one trillion dollars are traded every day in the FX market. The sheer volume of this market helps ensure price stability, as well as less gapping and price slippage.
■ Narrower dealing spreads: Normal bid/ask spreads are five pips or less, much tighter than a typical stock transaction.
■ No uptick rule: It’s easy to establish both short and long positions.
■ Increased leverage: Firms offer traders a 2% margin, compared to a 50% margin for equity markets.
■ No commissions or fees: Overall, FX has much lower transaction costs than equities or futures — an important point for active traders.
When considering trading currencies, you cannot ignore fundamental factors. These include:
■ Relative interest rates
■ Relative economic stability
■ Relative political stability, and
■ Relative trade deficit/surplus.
These fundamentals or market forces should be strong enough to initiate the formation of discernible trends in order for you to apply profitable technical trading strategies. Further, the length of the trends needs to be sufficient for you to recognize them and be able to take advantage of market swings.
Conclusion: From a risk/reward standpoint, forex investments provide respectable returns and are considered viable portfolio diversification tools.