Foreign currency markets can seem strange and arcane to outside observers. It’s a volatile field, one that can change dramatically at seemingly any provocation. However, it is still a viable place for people who want to invest, and there are reasons for this.
Foreign exchange investments have many benefits and risks, including a few that are unique to the market. In fact, these traits set it apart from other markets, like stocks and bonds.
Below, you’ll find a quick look at the benefits and risks you will encounter in a forex investment.
First, you’re looking at the most liquid market in the world. No other market lets you turn your investment into cold, hard cash so quickly. It helps that the market itself deals with money, just in varying denominations.
Forex is also the world’s largest market. The average daily volume that gets traded is more than trillions of US dollars.
Finally, forex is a great way for an investor to diversify. The risks in the market are high, but while the lows can be fast, the recoveries are too. Foreign exchange lets you step away from the risks associated with sticking to a local currency as an asset class.
However, you’re also looking at risks.
Foreign exchange is a market that moves in small increments. Getting high leverage is going to be a necessity, and also a source of risk.
The market is also highly volatile. Economic reports, international politics, interventions from central banks, and other factors can all have an impact. Due to the elements at play, it is impossible to predict the stability of the market or to plan in the long-term.
Foreign exchange investments also require a lot of observation and monitoring. The market changes on day by day basis, and investors will want to keep an eye on things to stay ahead of the game.