In addition to the fact that the foreign exchange market trades around the clock, five days a week, the currencies that are the object of trading in the forex market are among the most actively traded assets in the world.

The foreign exchange market is made up of varied participants, many of which have a commercial need to buy or sell currencies. Nevertheless, a great many more market participants in the forex take part with the sole intention of making a profit on foreign exchange transactions.

In fact, the sheer number of participants, which now includes a growing number of retail online forex traders around the world, is ample evidence that this huge and largely unregulated financial market offers trading opportunities unlike any other.

The Impressive Size of the Forex Market

The forex market makes up the largest single capital marketplace on the planet. With a daily turnover of more than $3 trillion, the forex market offers trading opportunities like no other.

The possibility of trading in the forex market was until recently only available to banks and other large financial institutions and their selected customers.

Nevertheless, with the rise of electronic forex trading via the Internet, the possibility of trading currencies has now become available to just about anyone.

The substantial number of participants, in addition to its global trading hours during the business week, gives the forex market a large degree of liquidity.

The Benefits of Liquidity in the Forex Market

The meaning of liquidity in the world of trading refers to how much trading activity occurs in an asset over a certain time frame, as well as the ability to convert an asset into a cash position quickly.

For example, the real estate market does not qualify as a very liquid market. The time between owning a real asset and liquidating the property can take years in some cases. Not so in the forex market, spot delivery is generally a two day settlement period, except for the U.S. Dollar versus the Canadian Dollar which is one day.

Why is liquidity important to traders? Because a liquid market prevents market pricing vacuums where a lack of orders to either buy or sell can create wild price swings. Also, a liquid market guarantees a certain degree of orderliness.

Liquidity also provides traders with lower execution costs and tighter bid/ask spreads which also contributes to keeping the trader's overall costs down.

Nevertheless, even the huge currency market can become illiquid at times. While rare, this can occur due to economic, political or other news events or extremely volatile price action that causes trading to thin out due to less participants being willing to make prices or take positions.

Diversity in Trading Instruments

In addition to the unparalleled liquidity of the forex market, a number of different trading options exist for the serious trader. The different types of contracts traded on currencies include:

• Spot trades

• Futures

• Forwards

• Swaps

• Contracts for Difference

• Currency Exchange Traded Funds or ETFs

• Options, both Vanilla and Exotics

Furthermore, various combinations of the above forex trading vehicles can be incorporated into a currency trading strategy to maximize profits and manage risk according to a specific market view.

Overall, trading currencies can be a highly lucrative endeavor and is not out of the realm of possibilities for most people now, with retail forex broker accounts and online trading platforms. Nevertheless, as with any business, risk is commensurate with reward, so avoid trading with money you cannot afford to lose.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.