Why trade FOREX?
Diversification of investible assets is fundamental. The FOREX market offers several benefits to accredited investors seeking to diversify their investment portfolio.
- The forex market is the world's largest market in terms of daily transaction volume, and it's the most liquid.
- This market is highly accessible given that it's open 24 hours a day, and
- Investors interested in trading forex can make use of far more leverage than they could by trading stocks.
The World's Largest Market
Global market participants trade more than US$5 trillion worth of currencies
per day, according to the Bank for International Settlements (BIS). Daily trading
volume averaged US$5.1 trillion in April 2016, according to BIS's
triannual survey, which is the most thorough poll of its kind.
While this figure of US$5.1 trillion (or roughly US$213 million per hour) may
seem high, it's more than 5% below the record US$5.4 trillion reached during
April 2013, according to the BIS.
In comparison, consider the following information:
- The New York Stock Exchange's daily trading volume averaged US$38.5 billion during the first five sessions of May 2017.
- The Nasdaq's daily trading volume averaged close to US$85 billion during the first four sessions of that same month.
One major benefit of having a larger market is that it makes it more difficult for individual traders and institutions to engage in price manipulation, which can cause securities to experience sharp price fluctuations in short time periods.
Robust Liquidity
Because the global forex market is so large, it offers traders significant
liquidity, which is the ease with which traders can exchange one asset for
another. In this case, the forex market's significant size makes it so traders
can enter and exit positions very easily.
In addition to giving traders greater maneuverability, high liquidity can help
provide them with lower transaction costs, as financial institutions charge
less to set up trades. Highly liquid markets can also help protect traders
from price manipulation.
When a market enjoys substantial liquidity, it can more easily handle large
increases in trading volume without experiencing significant changes in price,
making the market less vulnerable to sharp changes in trading volume aimed at
causing price volatility.
24-Hour Availability
One major draw of trading forex is that the currency markets are open 24 hours a day. Investors around the world want to trade currencies. Companies require currency for international trade, and central banks have been making use of foreign exchanges since 1971, when the value of most currencies began to "float."
Substantial Leverage
Traders might trade forex instead of stocks because when trading the former, they can obtain far greater leverage. By borrowing money to make trades, investors can potentially enjoy stronger returns.
For example, if a trader has access to 400:1 margin, they can make a £4,000,000 trade with just £10,000 in margin. As a result, they would only need to put 0.25% of the trade down as margin. While taking this approach can provide traders with stronger returns, they must keep in mind that leverage is a double-edged sword and can also greatly amplify losses. The US regulators limit the use of margin to 50:1, and relatively recently UK regulators imposed 30:1 leverage limit on brokers. For risk-mangement reasons MQT doesn't use more than 50:1 leverage, and even if a client's account is open with a broker that offers greater leverage, the positions are scaled down to minimize the risk of over-leveraging.
Summary
MQT has developed a proprietary FOREX trading system which incorporates elements of Momentum trading strategies with Quantitative Analysis delivered over our internally designed semi-automated system, which involves human factor in analyzing the mid- and short-term trends, and setting up parameter ranges; and automation that enters and exits markets at right times, when there are proper pricing opportunities. Our client partners are thus able to actively participate in FOREX trading by passively accepting our trading signals, without dedicating the personal time needed to analyze and effect profitable trades.