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The cash/spot FOREX markets possess certain unique attributes
that offer unmatched potential for profitable trading in any market
condition or any stage of the business cycle:
A 24-hour market: A trader may take advantage
of all profitable market conditions at any time; no waiting for the
'opening bell'.
Highest
liquidity: The FOREX market with an average trading volume of
over $1.5 trillion per day is the most liquid market in the world.
That means that a trader can enter or exit the market at will in
almost any market condition minimal execution barriers or risk and
no daily trading limit.
High
leverage: A leverage ratio of up to 400 is typical compared
to a leverage ratio of 2 (50% margin requirement) in equity markets.
Of course, this makes trading in the cash/spot forex market a
double-edged sword the high leverage makes the risk of the down side
loss much greater in the same way that it makes the profit potential
on the upside much more attractive.
Low
transaction cost: The retail transaction cost (the bid/ask
spread) is typically less than 0.1% (10 pips or points) under normal
market conditions. At larger dealers, the spread could be less than
5 pips, and may widen considerably in fast moving markets.
Always a bull market: A trade in
the FOREX market involves selling or buying one currency against
another. Thus, a bull market or a bear market for a currency is
defined in terms of the outlook for its relative value against other
currencies. If the outlook is positive, we have a bull market in
which a trader profits by buying the currency against other
currencies. Conversely, if the outlook is pessimistic, we have a
bull market for other currencies and a trader profits by selling the
currency against other currencies. In either case, there is always a
bull market trading opportunity for a trader.
Inter-bank market: The backbone of the FOREX
market consists of a global network of dealers (mainly major
commercial banks) that communicate and trade with one another and
with their clients through electronic networks and telephones. There
are no organized exchanges to serve as a central location to
facilitate transactions the way the New York Stock Exchange serves
the equity markets. The FOREX market operates in a manner similar to
the way the NASDAQ market in the United States operates, and thus it
is also referred to as an 'over the counter' or OTC market.
No one can corner the market: The
FOREX market is so vast and has so many participants that no single
entity, even a central bank, can control the market price for an
extended period of time. Even interventions by mighty central banks
are becoming increasingly ineffectual and short-lived, and thus
central banks are becoming less and less inclined to intervene to
manipulate market prices.
Unregulated: The FOREX market is generally
regarded as an unregulated market although the operations of major
dealers, such as commercial banks in money centers, are regulated
under the banking laws. The conduct and operation of retail FOREX
brokerages are not regulated under any laws or regulations specific
to the FOREX market, and in fact many of such establishments in the
United States do not even report to the Internal Revenue Service
(IRS). The currency futures and options that are traded on exchanges
such as Chicago Mercantile Exchange (CME) are regulated in the way
other exchange-traded derivatives are regulated.
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