Forex Trends Trading

By Author: Jubair Ahmed
Total Articles: 5
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The global financial crisis has created a huge panic because of its catastrophic effects on world financial markets - affecting stocks and derivatives and destroying once trusted financial institutions. What can traders do when markets become illiquid and influenced by political deals?

In uncertain times, the unique qualities of the foreign exchange (forex) market make it an ideal safe haven for traders. Why is this?

High liquidity

With $1.5 trillion traded per day, traders all around the world and 24 hour trading, 5 days a week, forex is the largest and most liquid financial market. You can always buy and sell quickly and close to the quoted price. Contrast this with other markets where at times traders found it impossible to unload their positions at ANY price.

Go long or short

Forex traders can go long or short at any time. There are no restrictions on short selling, as have been imposed on some stock markets, and no uptick rule. There are no trading limits imposed by exchanges.

Not correlated with the stock market

Connections between markets lead to a domino effect, affecting ...
... stock traders and financial institutions around the world. This showed the degree of correlation between stock indices in various exchanges, and between stocks.

Whilst forex markets are volatile, returns in forex are not correlated with the stock market. When stocks are down, you can still make profits in forex.

Transparent pricing

Recently traders who have purchased some derivatives such as CDOs have found it impossible to understand the true risks or value their own investments. Stocks have suffered severe price falls as previously unknown news has come out.

Forex pricing is transparent and set by the market. There are no insiders. It is easy to understand the value of your position, and the value does not rely on what someone thinks - it is set by the market. Forex prices tend to have long term trends.

Forex is a concept that is simple and understood by most people - as simple as buying cash at an airport on a holiday.

In a world of nasty, complex surprises, the transparency and simplicity of forex is a haven.

Decentralised market

Forex trading does not occur in a centralised market, like stocks or commodities. This means that traders and institutions from all over the world can participate. It is not restricted by national barriers, or questionable government market intervention.

Conclusion

Forex can be volatile, and news or politics does affect the market. Unlike what we have seen in other markets in the news, forex offers transparency, liquidity and stability in uncertain times. If you are a stock trader or into derivatives, forex trading offers a real alternative that you should consider.