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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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