A Brief History of Foreign Exchange Trading
The exchange of one form of money for another can be traced back to the time of the ancient Greeks, Romans and even further back. As long as there has been more than one currency, the need to exchange it has existed. This brings us to modern day times; the concept remains the same, just with the added component of technology.
In the 70s, 80s, and most of the 90s the exchange of currency was exclusively reserved to banks, hedge fund managers, and high network individuals. With the advent of the Internet and ever faster computer processors, the ability to trade foreign exchange was thereby democratized and is now available to any investor who can meet the minimum account opening requirements, often only a few hundred dollars.
Why Trade FX?
There are several compelling reasons foreign exchange should be a part of every investor’s portfolio.
No Bear Markets or Short Selling Challenges: Despite the past few years, stocks don’t always go up and even in a bull market corrections happen. There is no easy way to take advantage of bear markets besides complex options strategies which aren’t suitable for the average investor. The beauty of foreign exchange is that prices are relative, meaning that one never need worry about a lack of trading opportunities or bear markets. In essence, if one currency is strong, then the currency it is paired against must be weak. The result is the ability to buy or sell any symbol without restrictions.
24 Hour Trading – Stocks, futures and bonds trade on set hours and in only a few cases is this ‘round the clock.’ Due to the 24 hour nature of the FX market, one can trade during a time that is convenient and also focus on the pairs active during that time period. For example, a trader residing in the UK may only be able to trade after work hours, which allows them to focus on the North American market (US Dollar, Canadian Dollar, Mexican Peso).
Non Correlation to Other Assets – Currencies are not specifically tied to any particular market. Although correlations to other products exist, for example, the Australian dollar often tracks gold, Canadian dollar is somewhat correlated to oil, and the EUR/JPY trends to follow the stock market, there is no direct correlation. This allows investors to better diversify their portfolios away from a specific asset such as stocks or bonds.
Are You Ready to Get Started?
Check out a free, 30 day trial of our software where you can trade up to 80 different currency pairs in a single platform. You can register for your demo here