As you may have understood, the Foreign Exchange Market is where different currencies will trade with each other. It is also known as Forex or FX Market, so now you know. To start, the Foreign Exchange Market allows people to use their money in ways they couldn’t before, using it across national borders and allowing people to invest their money into higher-yielding investments.
The Benefits of the Foreign Exchange Market allow for huge profits that can multiply if used correctly via hedging strategies. However, not all of us know these benefits because no one ever told us about them. So let’s look at some key aspects of this market which will show how beneficial it is!
When you are trading currencies, if your trade goes bad, you can use a strategy called “hedging.” Hedging is the act of trading the same amount of money in another Country’s Currency instead. It places an opposing trade who will make up for your loss or even more.
First, pick two different countries out of 4 where 1 showed a high return and 1 showed a low return. Let’s say I chose France and USA to invest $100 into each. So $100 goes into France and $100 goes into the USA. After, let’s say, five days go by, France shows up as 50%, which means I made half my money back plus some extra due to interest rates, etc., but then the USA tanks, and it shows up as -10%, meaning I just lost $10. Instead of making $50 back, I made $40 back, so my initial investment of $100 is now only $60.
That is where hedging comes in; if you go and put an additional $100 into France to counterbalance your loss, you will make the full amount ($50) instead—allowing for a total return on investment of 100%. Or even better yet, you can put that extra money into the USA, allowing for more gains!
2) Speculation & Leverage
Speculation means buying or selling with the intent of profiting by reselling quickly at a higher price (kind of like how people gamble). The Forex Market allows speculation because everything is decentralized, creating very low fees allowing for much more capital to use.
Leverage is when you use a small amount of money ( 5%-20% ) to control a large cash value. For example, if investors can buy $50000 in France with only $10000 in their account, they are leveraging the system or making it work for them by controlling $45000 in France’s currency. This ratio changes depending on how much profit you make! And if your trade goes bad, this leverage will cost you more because all the money you did not use originally will charge interest until it pays off.
3) 24hr Limitless Trading
It means you do not need to worry about waiting for weekly or even yearly limits before being able to trade or withdraw your money. You can do this any time of the day, any day of the week, and any day of the year! You can also make as much or as little money as you want during any hour, minute, or second.
When it comes to trading Forex, your personal information is not shared with anyone because this market is decentralized. This means no central governing authority needs to know what people are doing—allowing for anonymity and privacy when trading online. It allows you to buy or sell whatever, whenever!
5) Low Minimum Deposit Requirement
When opening up an account, you have the option of depositing only $25. If you were wondering, that’s how low it can get! However, minimum amounts may vary depending on the broker, but it will be at least this much, allowing for easy access to this market!
6) Low Risk to Maximum Reward
There is a 0% chance of losing your initial investment, so if you start with $100, you will always have $100 at the end. It means there are only two outcomes, making money or breaking even, which allows for much higher profits! When trading stocks, many different factors can cause someone to lose, but all these other factors are out the window when it comes to Forex. Currency Rates move up and down by themselves, allowing for much more predictable rates than Stocks where earnings reports, companies hiring, etc., affect the outcome meaning it’s not as clear cut.
7) Diverse Market
The best part about the Forex market is that it’s not just one currency pair you are trading. It consists of thousands of different types! It means you can go and trade all the major currencies across the world. Such as EUR/USD, USD/JPY, GBP/AUD, etc., Which allows for unique opportunities to make money if done right!
Compared to the Stock Market, Forex is much more technical and has many advantages. Such as allowing you to use leverage, make money 24/7, predictability, and anonymity! This market also allows for great diversification, which, used effectively, can lead to high profits!
Sarah has been writing for a decade and now for the online Quran classes UK Website. She obtained her Master’s degree at the University of London. Her main objective is to write insightful content for those people who read and like it.