by Ellie Taft
Global tycoons and international corporations are long-time fans of the currency game. At one point, DaimlerChrysler reported half their profit was generated by currency trading. In the past, million-dollar transaction requirements put the Foreign Exchange Market out of reach for the “little guy”. Then in 1996 regulations changed. Mega-interbank units were broken into smaller lots. And the retail Forex market was born.
Now every day folks like you and me can gain the same wealth-building advantages as banks, investment houses, and billion-dollar corporations. Modern technology came along and leveled the playing field. It has allowed YOU to trade right along side of the world’s wealthiest tycoons. The internet allows orders to move from retail trader right through to the Interbank market in a matter of seconds. Trade execution is ongoing and generally instantaneous. So the “little guy” can now trade on a level playing field with the “big boys”.
Forex popularity has skyrocketed. According to the Bank of International Settlement (BIS), daily volume hit a high of $4.7 trillion per day in October 2011. Putting it into perspective, $47 trillion is… over TEN TIMES GREATER than all of the world’s stock markets combined, it’s more than 126 times the average daily volume of the New York Stock Exchange, and it is $687 a day for every man, woman, and child on earth!
And with that kind of volume comes liquidity – the single most important factor for any investment.
The enormous wealth-building power of leverage is one of the most exciting aspects of the Forex market. Leverage is the financial term for owning an asset for a small down-payment. The degree of leverage is referred to as “margin”. The equity markets may offer margins as high as 4:1 margin. And in futures you can expect about 20:1. Meanwhile, in the Forex market, a whopping 50:1 margin is typical.
During the real estate boom of 1995 – 2005, shrewd investors got rich by putting 10% down on pre-construction condos (10:1 margin) and then keeping 100% of the profits when their completed units sold for 30% more. Let’s do the math: $100,000 pre-construction… $10,000 down… $130,000 sales price… 200% profit. Not bad. At 50:1 Forex leverage is 5 times better! But 10:1 isn’t bad, assuming you’re able to sell your investment condo. Unfortunately, the real estate bubble burst and liquidity dried up. Many investors are now stuck with empty apartments and burdensome mortgages.
Thank goodness, with Forex you’re never stuck. National emergency aside, it’s inconceivable for liquidity to dry up in a trillion dollar market. And 24-hour operation further assures you can get out whenever you say.
So, while it’s true that leverage can be a “double-edge sword”, the incomparable 50:1 leverage available in the Forex market is justified by the unsurpassed liquidity.
You may lose money from time to time, and in fact you will. But you can always stop while the loss is small, get out, and save your capital for the next winning opportunity.