VCG Forex.com Blog

Foreign Exchange (forex or fx) is the over the counter (OTC) financial market which allows for the trading of currencies. The forex market comprises of financial centers around the world trading between a large number of buyers and sellers globally, 24 hours a day, except for weekends. But why are we as investors now being inundated with information about the forex markets and currency trading? Why is it now so important to get involved and begin evaluating a speculative investment in this market?

Foreign Exchange (forex or fx) is an over the counter (OTC) financial market where buyers and sellers carry out a large volume of foreign exchange transactions daily. The forex market is practical because it helps enable trade and transactions between countries, and it also allows an investment opportunity for risk seeking investors who don't mind engaging in speculation.  Those that trade in the forex market typically look carefully at a country's financial, economic and political situations, as these factors tend to influence the direction of its currency.  But why are we as investors now being inundated with information about the forex markets and currency trading? Why is it now so important to get involved and begin evaluating speculative investment opportunities in this market?

Technology

In decades past, the forex market was dominated largely by banks, central banks, multinational corporations, governments, hedge funds, and other financial markets and institutions.  These entities had the ability, knowledge and resources, to build and maintain strategies that could them capture alpha or market-beating returns on forex investments.  Some have heard the stories about George Soros and his Black Wednesday trade that earned him over $1 billion, when he broke the Bank of England and forced England to withdraw from the European Monetary Union.  Of course, this was back in 1992, long before retail investors could take part in the forex market.

With the advent of the internet and the advances in technology, forex trading has now moved from being primarily traded manually over a trade desk by these larger entities, to being executed electronically over an online electronic trading platform.  These advances have fueled the speed with which banks can now provide equal price offers to retail investors as they do to larger entities.  We now see retail brokers providing every day investors access to trade the forex markets via their own online trading platforms with investors needing only to deposit sums as low as $200.

As we move into the next decade, we expect to see opportunities increase in the forex market as more and more banks improve their technology and provide this global asset class more transparency, speed and liquidity.

Regulation

As is mentioned above, jurisdictions around the globe have had to move quickly to keep up with the growing demand in the forex markets globally.  Here in the US, the National Futures Association (NFA), a self-regulating entity under the U.S. Commodity Futures Trading Commission (CFTC), have made drastic strides to develop a plan for regulating forex trading in the US.  Entities wanting to trade or promote forex trading must follow strict regulatory guidelines and seek the appropriate licensing and approvals from these governing bodies.

Over the past 3 years, many of the bad retail forex brokers that initially offered accessibility to trading forex have vanished.  This is the favorable outcome of the government’s initiatives to weed through the firms that were practicing high pressure tactics, and taking advantage of investors and traders.  Brokers in the USA, classified as Forex Dealer Members (FDMs) or Futures Commission Merchants (FCMs), are now required to provide daily and monthly reports of their compliance and financial requirements being met and upheld.  The new alternative net capital requirement is $20 million plus 5% of the amount of customer liabilities over $10 million.  This increased responsibility and accountability has provided investors and traders more peace of mind with regard to the institutions with whom they deposit their funds (margin) for trading.

Investors seeking Alternative Avenues

Investors today are seeking other avenues to diversify their assets.  The recent market recession of 2008/09 have taught many that a dependence on the stock and bond markets only, might not be a wise choice.   Investors are now increasing their knowledge of the forex market, mainly because it’s one of the most liquid markets in the world, trading in excess of $3.2 trillion a day in volume.  Also, the forex market is active 24 hours a day, except on weekends, leaving access for investors the ability to trade when it’s most convenient for them.

Risks in Forex

There are many advantages to trading in the forex market, however, investors and traders must also know what to be weary of when looking for opportunity.  Forex investments are often afforded access to a considerably high degree of leverage (in some cases up to 100:1).  This can result in large losses as well as large gains.  Investors must know and understand their investments and understand that it is possible that they could lose their principal in any investment made in this market, just as with any other investment / market.

How to evaluate an opportunity

Valhalla Capital Group is a registered, regulated and licensed Commodity Trading Advisor and Independent Introducing Broker, under the NFA and CFTC.   We assist investors and traders in the forex market, by helping investors decide whether an investment in forex is a right move and whether they suitable for the risks involved.

As technology, regulation and professional trading systems improves, we will most likely continue to see a rise in the investments in the forex market.  With 24 hour trading, opportunities in bull or bear markets, greater control, liquidity and transparency, it’s no wonder we see forex trading as the buzz of the investment world.