Online foreign currency trading is similar to the futures markets in that
investors are able to control large amounts of assets for a relatively small
deposit, or margin. As with all investments, without proper risk management, high degrees of leverage can lead to large losses as well as gains. The leverage
in online foreign currency trading is greater than a stock bought on margin and a
typical futures contract. For a deposit of just $2,000 an investor can leverage
$100,000 worth of foreign currency or $50 leverage for every $1 invested.
Buying a stock on margin only allows $2 leverage for every $1 invested and a
typical futures contract allows around $15 leverage for every $1 invested.
Secondly, because you access the foreign exchange markets directly
through an online trading platform, you pay zero exchange fees. And like
futures, you can roll over foreign currency positions indefinitely. Online foreign
currency trading is a 24 hour market that literally follows the sun around the
world, allowing you to trade when you want to.
Unlike stocks, there are no restrictions on short selling in online foreign
currency trading. Sell or buy-it doesn't matter which way you play the market
when you invest in foreign currencies.
And finally, the huge number and diversity of investors involved in online
foreign currency trading make it more liquid than both stocks and commodities.
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