Fundamentals Of A Good Forex Trading Market

By: Donald Saunders

Whether you are trading stocks, bonds, futures, foreign exchange or just about anything else you care to mention the conditions that make a market suitable as a trading ground for the investor remain the same. In essence, there are four characteristics which are always present in a good investment market - liquidity, transparency, low trading costs and the existence of trends in the market.

Liquidity

All trading consists of two elements, a purchase and a sale, and liquidity in its simplest form refers to the ease with which traders can buy and sell. I say 'in its simplest form' because for a market to be truly liquid traders must also be able to buy and sell in substantial volume without any marked effect on prices.

The problem with a market that is not liquid is that traders will often find that there are delays in filling orders to buy, resulting in often substantial differences between the price at the time the order is placed and when it is actually executed. In addition, it can often be difficult to sell in a market that lacks liquidity.

The Forex market is an extremely liquid market with a huge number of trades being conducted daily and with a trading volume that is second to none.

Transparency

The transparency of a market is best defined as the ability of traders to access accurate information at all stages of the trading process.

Information is the key to most things in life and this is certainly true in many of the world markets.

Indeed there are many examples, especially across the world stock markets, of companies and individuals running into difficulty because all of the parties involved in a trade did not have access to accurate information, or were given inaccurate information.

The Forex market is without doubt the most transparent of all of the world trading markets and this is especially true when it comes to pricing.

Low Trading Costs

All markets carry trading costs and the higher these costs the lower the trader's profit or the greater his loss. Any market therefore that can keep its trading costs low will be attractive to traders and will encourage greater trading volume.

The lack of commission and similar trading costs and the tight spread of prices in foreign exchange trading mean that trading costs in the Forex market are kept very low compared to other markets.

Trends in the market

One of the most difficult things in many markets is knowing just when to enter the market, or buy, and when to exit the market, or sell. For this reason it is important to have some mechanism which traders can use to assess the current state of the market and to predict its future course.

In the case of the Forex market this essentially means employing various different forms of technical analysis which rely on studying the past performance of the market and identifying trends which can then be used to predict the future.

Most markets will display some form of trend, but some markets have far more clearly defined and marked trends than others, making it far easier for traders to enter and exit trading positions. FortunatelyFree Web Content, the Forex market is one market with a particularly strong trending characteristic.

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