In the recent times one term is shaking the whole world because of its severe effect over the world economy. That term is- financial crisis or sub prime crisis. The heat of this financial catastrophe is no longer restricted in the borders of the US but is very rapidly spreading all over the world. Like a living nightmare, banks are falling, giant companies are facing bankruptcy, people are losing their jobs and stock markets are collapsing. None of us are immune from it.

Forex trading offers a sound alternative to investments in stocks or financial instruments such as CDOs or other derivatives. Read more to find out why forex trading offers benefits in these uncertain times.

Liquidity – high volume of traders

Liquidity is one of the unique characteristics of forex trading. Every day there are thousands of traders participating in the market to trade more than 1.5 trillion dollars. If you have positions that you need to transform into cash then it is no problem. With the 24 hour forex market, counterparties are only a mouse click away. You can always liquidate your position at a moment’s notice at close to the market price.

Other forms of investment may not be liquid at any price. Recently the prices of gold was pushed down as it was the one investment that hedge funds could liquidate. Their derivatives could not be sold, and there was often no market for them.

Can make money in both up and down markets

With most investments, you make money by firstly buying (for example a stock), then hoping that the market goes up, and your stock goes up as well.

But with the forex market, there is always the opportunity to make money by trading currencies (going long or short), no matter which direction the market moves. You don’t have to wait for the market to rise to make a profit.

Not correlated with the stock market

During the financial crisis, both big companies and individuals were affected heavily when the stock market collapsed as many financial institutions are directly linked with it. Most shares are correlated with each other, and the overall indices.

But forex is not correlated with the stock market. Even if it was, the ease of going long or short means that you are unaffected by stock market movements. Forex is the ideal hedge against stock market uncertainty.

Transparent pricing

Currency trading is simple and as familiar as changing banknotes at an airport on a foreign trip. The financial crisis was exacerbated by exotic derivatives that have unfamiliar pricing characteristics, and where market prices could not easily be determined. In the end, even the issuers were unable to value some of these instruments.

The very tangibility of forex trading (buying and selling currencies) and the ability to trade in a very liquid market that constantly revalues each currency pair is very reassuring compared to ownership of exotic derivatives such as CDOs, risk swaps, binary options which rely on faith for the pricing rather than the market, and which rely on the solvency of the issuer.

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Tags: financial crisis, forex trading

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