What are the advantages of investing in foreign currency?
The biggest advantage of investing in foreign currency is its availability which is 24 hours a day except the weekends. There are different financial centers in the world for trading Forex and when one closes another opens and this gives 24 hour availability to the currency market. The traders can thus trade with the time they like and benefit from the volatility given by the different markets.
Another biggest advantage is that the foreign currency market is huge and therefore no one can corner the market because of the huge number of participants. Thus the market price cannot be controlled for any big participant for a long period of time.
In foreign currency trading, a small deposit can control large values of orders and this feature is termed as leverage. It helps the traders to gain a nice profit from minimum capital they have. For example you have availed 100:1 leverage ratio. This denotes that you can control 10000 Euros worth of currencies by depositing only 100 Euros with your broker. Similarly with 500 Euros you can trade with order of 50000 Euros expecting a good profit in return.
High liquidity is offered by the Forex market since the size of the market is huge. You can always open or close a position since you have someone in the market willing to take an opposite position for you to balance the trade.
There are low barriers to entry in investing in foreign currency. You can open an online account with as low as for few hundred Euros. With the growing number of online brokerage firms, the entry barriers are reduced and it is easy to open an account instantly.
Risks of investing in foreign currency
Though there are innumerable benefits of investing in foreign currency, there are some risks involved too. There are risks to losses since the currencies are highly volatile under certain economic, political and other conditions.
Also leverage maximizes the amount of your potential loss and it can destroy all your savings at once if taken in a bigger ratio. So it has to be managed well.