FT’s article entitled ‘Why would anyone trade forex?’ shows clear misunderstanding of retail forex traders.
LeapRate Exclusive…. In a follow up article to the news that FXCM had been fined £4 million by UK financial regulator FCA, the Financial Times ran an article questioning the basis of any retail trader participating in the forex industry, Indeed, the FT entitled its piece Why would anyone trade forex?
We think that the FT article is way off base, and shows the writer’s and the FT’s misunderstanding of what really drives retail traders.
The FT’s rhetorical question cites issues such as:
- the forex market is vast, far bigger than equities or bonds
- most of the trading is done over-the-counter rather than on exchanges
- the market is open virtually seven days a week
- currency cross-rates don’t tend to move by big intraday margins
- not only is the forex market very liquid, it is also very efficient
We believe that it is precisely these points which draw Mom & Pop traders to forex trading, rather than scare them away.
Because the market is large and super-liquid, retail traders feel that they are NOT at a disadvantage versus the ‘big boys’, like they feel they are in stock or bond trading. The feeling among many retail traders is that trading in company-issued securities is stacked against them, with big institutional investors having access to better information about specific companies and industries.
But not so in forex.
The almost 24/7 nature of the market is a major draw as well. Equity and Bond market traditional trading hours are not convenient to most traders who have day-jobs. And in stocks and bonds the ‘action’ is usually limited to right-after-the-open and right-before-the-close windows.
But forex trading goes on around the clock, a major draw to traders who like the action of trading.
And as far as leverage goes — yes, leverage is necessary in a market where major moves are rare, and moves are measured in pips, or parts-per-ten-thousand. But on the other had, forex traders don’t have to worry that their holdings will go bankrupt. And they can make money just as easily going long or short a currency pair, something much more difficult to do in stock and bond trading.
The retail forex sector is far from perfect, and can always be improved. But the reasons which so many traders turn to forex are fairly obvious and well documented.
We would have expected a much more balanced and well-thought out article by the FT.
To see the FT article click here (may require an FT subscription).
For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.