In order to maintain a diversified and growing portfolio, stock holdings need to be balanced by foreign exchange positions. Currency rates, economic issues and the health of the company in question compound the impact of stock positions in your portfolio. Forex provides the diversity that is necessary to maintain consistent portfolio growth.
Forex Brings Profit in Bear and Bull Markets
In the foreign exchange market, there is no short selling restriction. There is potential for profit in currencies regardless of which way the market moves. Forex always involves selling one currency to buy another, so there is no structural bias to the market. Depending on short and long positions, a trader always has an opportunity to profit in a fluctuating market.
Forex Provides up to 150 Times the Leverage of Stocks
Foreign exchange trading with a clearing house can give you up to 150 times the leverage of your stock trading accounts. For every €1,000 you invest in stocks, you gain control of at the most €2,000 worth of shares. But with certain clearing houses, margin of only €1,000 gives you control of a currency trade of up to €150,000 in currencies
You can make money on ordinary news items, like changes in interest rates
If the market has uncertainty regarding interest rates, then any bit of news regarding interest rates can directly affect the currency market. Traditionally, if a country raises its interest rate, the currency of that country will strengthen in relation to other countries as investors shift assets to that country to gain a higher return. Hikes in interest rates, however, are generally bad news for stock markets. Some investors will transfer money out of a country's stock market when interest rates are hiked, causing the country's currency to weaken. Determining which effect dominates can be tricky, but generally there is a consensus beforehand as to what the interest rate move will do. Indicators that have the biggest impact on interest rates are PPI, CPI, and GDP. Generally the timing of interest rate moves are known in advance. They take place after regularly scheduled meetings by the BOE, FED, ECB, BOJ, and other central banks.
You can easily and quickly diversify out of U.S. dollars
The trade balance shows the net difference over a period of time between a nation's exports and imports. When a country imports more than it exports, the trade balance will show a deficit, which is generally considered unfavourable to that nation's currency. Many investors know that they should diversify some of their assets into foreign currencies, but to do so is difficult. Most U.S. banks, for example, do not offer foreign currency accounts. But by trading forex, you instantly control hundreds of thousands of dollars worth of foreign currencies. For every $1,000 margin deposit, you can control up to $100,000 worth of Euros… or British Pounds… or whatever currency you believe will rise in the future.
Forex is perfect for Technical Traders
The strong trends that foreign currencies develop are a significant advantage for technical traders. Unlike stocks, currencies rarely spend much time in tight trading ranges and have the tendency to develop strong trends. Over 80% of volume is speculative in nature and, as a result, the market frequently overshoots and then corrects itself. A technically trained trader can easily identify new trends and breakouts, which provide multiple opportunities to enter and exit positions.
Analyze a Nation like a Corporation
Currencies are always traded in pairs -one currency is purchased with holdings in another. As with stocks, better FX returns are provided by the currency of a country that demonstrates faster growth and is in a better economic condition than others.
Currency pricing reflects the amount of available supply and demand. Interest rates and the relative strength of the economy are the two primary factors that determine the availability of a currency. Leading economic indicators reflect the economic health of a nation, and are in large part responsible for shifts. An overwhelming amount of data is available at regular intervals - the challenge is to determine what factors are more influential than others. Interest rates and international trade ratios are typically the most important.
Trade Forex 24-Hours a Day
Forex trading is a window to the world economy. Trading starts on Sunday at 5:00 PM Eastern Time with the opening of the markets in Singapore and Sidney. A couple of hours later, the Tokyo market is open. Next is London, which opens at 2:00 AM Eastern Time on Monday. And by the time the day catches up to New York, the world currency markets have been at work for fifteen hours. You determine the timing of your trades, instantly reacting to any news or market pressure. Trading stocks when the U.S. markets are closed is not easy and does not provide much liquidity. With forex, you can trade 24-hours a day in the largest and most liquid market in the world.
Forex vs Stock
CFDs, which are leveraged products, incur a high level of risk and can result in the loss of all your invested capital. Therefore, CFDs may not be suitable for all investors. You should not risk more than you are prepared to lose. Before deciding to trade, please ensure you understand the risks involved and take into account your level of experience. Seek independent advice if necessary. Hastings Asset Management reserves the right to make a final determination on whether or not you are eligible for any particular product or service.
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