Chapter 2 Pros and Cons of Forex
The Forex market is highly sensitive to global events which makes foreign currency exchange rates very susceptible to economic data releases, central bank policy changes, and macroeconomic and political events.
Forex as an asset class has relatively low volatility. This is because Forex assets are fiat currencies managed by central banks, and these banks can expand or reduce supplies of their respective currencies as they wish, giving them the ability to turn both demand and supply on or off. As central banks generally strive for relatively stable exchange rates for their currencies, Forex tends to be a relatively stable mean-reverting market most of the time, although persistent trends do of course happen, especially in the biggest currencies such as the U.S. Dollar and the Euro.
The cost of trading Forex is relatively low. For example, retail Forex traders typically pay a spread and/or commission of approximately 1 pip on a round trip trade in the benchmark EUR/USD currency pair, which represents a cost of approximately 0.08% of the value of the asset traded. The costs of trading or investing in cryptocurrencies tends to be considerably higher.
As price movements in Forex tend to be relatively calm with low volatility, regulators tend to allow retail Forex brokers to offer high leverage in Forex currency pairs – as much as 30 to 1 even in highly regulated jurisdictions. This means that if you trade Forex, you can usually buy and sell much more Forex than the actual money you have deposited in your account, although it is not generally a good idea to be very highly leveraged.
The retail Forex market is generally open from Monday morning in the far east until Friday night in the U.S.A. Essentially, it is open for business 24 hours per day, 5 days per week – and there are even a few brokers beginning to offer trading over the weekends, too.
There are three major Forex market sessions: American, European, and Asian, which occur during the usual business hours of these geographic areas. The sessions are dominated by New York, Tokyo, and London as the most important global financial hubs. Broadly speaking, the Forex market is most active and best traded during the London / New York session overlap, from approximately 9am to Noon New York time.
