Most investors prefer to invest their money in stocks. Most investors haven’t even considered adding currencies futures and ETFs to their portfolio. I believe that investors should understand all markets they can invest their money before setting up their portfolio.
Here are some advantages to trading currencies on the Forex markets you may want to seriously consider.
Extremely Liquid
Forex is the largest market in the world. Nearly $2 trillion worth of currencies are traded every day. That is approximately 30 times the size of all stock and private equity markets. This means that Forex is extremely liquid and you can close your positions almost instantaneously.
Although stocks are also very liquid securities, you won’t be able to close your positions as quickly as you can with Forex trades. Investors can close their positions nearly instantaneously.
Strong Potential for Leverage
The greater liquidity of a Forex market will give you considerable opportunities to leverage your trades. You can make trades on the margin by putting down as little as half a percent up front. Most brokers have a margin requirement of 10-20%. This gives you many more opportunities to make money on your finances.
Flexible Trading Hours
The Forex market is also open every hour of every day. This gives many part-time investors the flexibility to trade after they are done working or finished with their other responsibilities. Most stock markets are only open from 9 am to 4 pm. This makes it considerably more difficult for traders to trade part time.
Low Cost of Transactions
It is much cheaper to invest in currencies than most other securities. Forex brokers don’t charge a commission for their services. Any other broker is going to take a cut of your transactions.
In addition, Forex trades are conducted over-the-counter rather than through a centralized exchange. What does this mean for you? You don’t have to pay the exchange fees charged with most other securities. This makes it a lot cheaper to invest in Forex than most other types of securities.
No Restrictions on Short-Selling
There are a number of times when you might want to short-sell a currency. For example, right now I am considering short-selling the euro because of the growing debt crisis in the Eurozone.
There are limitations to short selling stocks and other securities. Some of those limitations are imposed by lawmakers, while others are inherent to the laws of supply side economics. This leaves you with fewer opportunities to profit by short-selling other securities. You will also need to consider the costs of short-selling other securities relative to Forex. You will be obligated to pay interest and dividends on any security during a short sale. However, currencies don’t pay interest or dividends, so you won’t be on the hook for these costs.
Very Small Likelihood of Market Manipulations
Institutional investors have considerable influence over the direction of stocks. They can buy or sell stocks in large quantities, which can drastically shift the price of an individual stock or the entire index.
Forex markets are much larger and institutional investors don’t have enough buying power to manipulate them as well. This means that you won’t need to spend nearly as much time trying to predict the buying decisions of large banks or hedge funds.
Consider Trading Currencies Too
There are clearly a number of great benefits to investing in stocks and bonds. However, many investors fail to consider the number of benefits they can have by purchasing other securities.
Kalen Smith shares tips for people learning how to invest in currencies.