The forex market isn’t just about speculation. Banks, businesses, and other parties who need access to foreign cash take part in FX trading to facilitate international transactions. Companies also in advance agree on FX rates to fix the costs of future currency exchanges, known as hedging. Another use case is for Governments to build up reserves and meet economic objectives, including currency pegging or boosting imports/exports.
For individual traders, there are attractive features to the forex market too:
- Leverage allows even small traders to invest with larger sums of capital than they directly have access to.
- The entry costs are low, as it’s possible to buy small amounts of currency. Buying a share in the stock market may set you back thousands of dollars, compared to entering the FX market for $100.
- You can trade at almost any time, making forex suitable for all schedules.
- There’s high liquidity in the market, as well as a low bid-ask spread.
- Options and futures are standard products. Shorting the market is possible for traders who don’t just want to spot buy and sell at the current market price.