What is Foreign Currency Trading So Beneficial

Foreign currency trading is more attractive than for most other instruments, because of the flexibility, liquidity and profitability that the diverse forex market offers.

What is Nice and Unique about Foreign Currency Trading

Foreign currency trading is promoted by many brokers and software vendors as a market that offers high leverage and easy money. While leverage is good, it is hard to learn forex trading and make consistent profits out of it. The global foreign currency converter infrastructure has some hidden advantages that are not found in most other financial markets. These have to do with the ability to hedge one trade with another, in ways that are not easy to implement say in stocks or in most commodities. This hedging allows traders to be wrong in their judgement, and still manage to make money, through a series of hedging trades. Another unique advantage of the forex market is the Carry trade, where traders make money from interest rate differentials. And again hedging is required to offset, or at least limit adverse price movement. The forex market is more forgiving to rookie traders and traders who make mistakes. Whereas in the stock market, one mistake could be catastrophic as all stocks tend to move in one underlying direction, and once in the wrong trade hedging becomes very difficult, at least when using stocks alone.

What about Predictability?

Investing in foreign currency pairs is all about country-specific analysis, where the economy of the country is analysed. Currencies are easier to predict than stocks, this is because of many reasons, one of them being the decentralised nature of the forex market. As information is spread wider around the world, and the basic trend of a currency is easier to figure out than that of a specific company’s stock. Foreign currency trading is therefore more flexible, less stressful and better meets the needs of creative traders, traders who are original thinkers. Currencies are still volatile and tricky to figure out, but the are smoother when there are solid trends in place. They are also more liquid than stocks, and when the investor or trader knows how to predict a move in price, they stand to make good money. Stocks are harder to trade, especially in the short term, because trading action is directed from the centralized trading floor, where many new trends are initiated. As far as day trading goes, one is far better off trying their luck with currencies than with stocks. Currencies tend to make their highs and lows during specific time zones, for example one currency may have the tendency to make its move during the European session. While another has a tendency to make its move during the Asian session. And liquidity is good around the year, there are no light volume days or months. Also, currencies offer flexibility on analysis methods. One currency may be highly technical, while another trades strongly on long term fundamentals.