In the past, trading currencies was practiced especially by multi-national corporations and well-resourced investors, but nowadays this market has also opened up for average investors. Forex is the foreign exchange market where these currencies are traded and speculators have many opportunities to take advantage of exchange rates movements.
1. The first reason why you should consider investing in currencies is the diversification of this underlying asset. So you can balance your portfolio by using currencies. If you believe that euro will drop in the future and the dollar will rise, you can buy dollars now and sell euros to make profits.
2. Another reason why you should choose currencies as underlying assets is the hedge. You can hedge against political and event risk and against global economic changes. Currencies can be played against each other based on your own assessment of significant events taking place around the world: interest rate fluctuations, wars, changes in top leadership, monetary policy changes, recessions or tax changes.
3. As we have mentioned, you can hedge against global economic changes too. So the currency market allows traders to select currencies depending on how they appreciate their relative values will change in the future. You can go both ways, either long or short, according to which direction you think a particular currency will evolve. This way you divide the risk across the currencies of several countries and profit from the changes in global economy.
4. You can enter very easy this market, by starting with a small account of $250. So traders don’t need large amounts of money to start making great profits and anyone can take advantage of the benefits of currency market.
Beside these four great advantages, there are another important reasons why you should consider to invest in currencies: the large size of the market, the great profit potential, the trading hours (24 hours a day, 7 days a week), the tax advantages and the increased leverage. Take them into account before trading, but do not forget about the risks and about your capability to face them.