Forex Market - Biggest Financial Market

The statistics say that US $3 Trillion and above are being traded in daily trades. This number is an average of trades over the last year. The mind-boggling number of $3 Trillion indicates to you that no other market (Futures, Stocks) can come close to the Forex Market when we talk of the money involved in these markets. As it happens in most markets, money traded would mean currency bought and currency sold. If we assume that 60% of the trade was bought by traders across the globe and 40% sold, we are talking some really big numbers.

Why do people invest money in the Forex Markets?

There are very much factors that influence people's decision to invest in Forex Markets. According to me, three factors are of prime importance.

-The Trading Volumes - Unlike Scrip or Futures, there is no upper limit on the amount of trade or the number of units you can purchase. In the Forex Market, you have currency pairs on which you can make a buy or a sell call. Whether you invest $500 or $500,000 is completely your call.

-24 hours trading - With different countries in the globe on time zones, it gets very difficult for a trader in Australia to cope up with EST Morning timings. If a person in Australia gets up to 10.00 AM to trade in the EUR-USD pair, he would still be able to do it. The only exception to this would be weekends.

-Cross-section of factors impacting the exchange rates - Most traders believe in trading on units that are influenced by a lot of factors. When a unit is influenced by a lot of objective factors, chances of speculative trading is extremely marginal.

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How have people been investing in Forex Markets? Is this expected to continue?

The methods of investing in Forex Markets are very diverse. One could look at traditional way of investing that includes channels like Spot Market, Outright Forward, Forex Swaps whereas one could also look at investing money in derivatives.

-Spot Transactions - Close to $1 Billion have been invested on a daily basis. This trading is best told by this example - You could buy USD with a JPY (Japanese Yen) for delivery on immediate basis. This is best for traders who wish to capitalize on the strength or weakness of a particular currency on a particular day.

-Outright Forwards - This is the most favorite segment amongst traders in the conventional trading category with close to $362 Billion invested daily. This is best for traders who are unsure of the volatility of a market at current times. Such traders would always want to postpone the delivery or exit their trades at a later date. Financially, this is known as hedging.

With close to $1.7 Million in Forex Swaps and close to $2.1 Trillion being traded in derivatives, the Forex Market is indeed selling hot cakes for traders. Every accomplished trader will tell a newcomer this - Understand the fundamentals before entering the Forex Market. Please note that as soon as you have an active account for yourself to invest in Forex Market, you would be tempted to make a buy or a sell in the market. As it goes, you would not be able to make an informed decision if you do not understand the fundamentals.