The business of forex trading has continued to increase in recent as more and more people continued to come to the internet in order to earn money. Many of this people have the intention of getting superior return from their investment online. All this continued to create a situation whereby many of these fortune seekers came out with out achieving their objectives. This is because many of them did not know that in foreign exchange, there are four major factors which will continue to create a unique investment environment. These are liquidity, leverage, convenience and cost. Knowing these factors and their impact on the market is a sure fire way to trade forex successfully. In other markets, can you find a playing field that is so biased to the investor, at least on the surface? But to take advantage of these factors you have to be constantly aware of their downside.
Let me take leverage for example, to me, this is the ability to use the same amount of money to create a larger position or a situation in which one is able to use the ability to create the same size position with less money. As a forex trader, the second one is the one we should focus on. A trader in forex should try to have the same position, with less capital out lay. It show a penchant for risk management-a characteristics possessed by all consistent successful trader in forex.
Let us look at liquidity-in a liquid market, there is a high degree of transparency, even when large transactions change hands. The successful liquidity trader understands what this means: it is a known fact that forex attracts huge players. As a trader grows in sophistication, they understand that these huge players have significant price impact, and watch for their market entry.
Though we know that one of the advantages of trading in the forex market is that it provides conveniences for each player, and that one can trade it at one’s own convenience, this does not stop the forex markets from operating however. You should always know that forex demand 24 hour monitoring, the mere fact that you need to go to bed or have some sort of leisure does not stop the forex from operating therefore, in order to trade successfully through out the day without stress, you have to automate the trading system or less optimally, through pre-set stop and limit orders or physical monitor the trade.
Finally, let’s check cost. You should know by now that there is high level of transaction costs, paid to forex trade dealers through the bid-ask spread. There is no doubt that the liquidity, leverage, convenience, and transaction cost, found in the forex markets are great tools for traders. Just as easily as these tools can use for wealth creation, they can be misused for wealth destruction. Do not destroy wealth like the novice trader but create it.