Forex Spot Market



Forex spot market… So you’ve heard of options, futures, swaps, and what not, but what on earth is the spot market?

Forex Spot Market Definition

By now you know:

-Futures are contracts based on the price of an underlying asset; and

-Futures markets are where such contracts are bought and sold.

But where is the underlying asset sold and bought?

You guessed it:

The SPOT MARKET.

Yep. It’s as simple as that.

End of piece.

You know everything you need now.

Wait.

That’s not true.

The forex spot market is where we buy and sell currencies.

You buy a currency while selling another and vice versa.

BUT

Why Trade the Spot Market?

We’ve stopped before on the many advantages of trading the forex spot market.

However, we need to step back.

Why trade any market?

Any ideas?

You want to trade a market in which it’s possible to make money often.

This means you need volatility and price moves happening fairly often so you can capitalize on these by buying or selling the asset in question.

But you don’t want too much volatility or you risk losing your shirt! Or your house, if you’re a player ;)

You need the market to be as liquid as possible: many buyers and sellers so you can fill your orders in a timely fashion.

Liquidity: tons o’ money on da’ table -changing hands rapidly.

If you want to get your money stuck, you can buy a crappy house anytime, anywhere (you won’t see your money back in a few weeks, guaranteed).

But that’s not what we’re after here.

You want a market which is hard to manipulate by private interests for any good period of time (goes back to liquidity).

Master of Puppets anyone?

You want a market which allows you to profit in good and bad times. The more global the better, since the whole world can’t be fucked (can it?!) at the same time.

And if the whole world is royally screwed, then some regions will be more screwed than others, thus, allowing some region’s assets to have stronger valuations (relatively speaking), hence endowing traders with profit opportunities.

You want a market with very tight competition for brokers, so they can’t take an eye and a leg for every trade you take (low cost- for any accountant reading this).

Also for the gamblers out there,

You want a market where you can leverage your soul to the devil and play to win it all (and lose it all, most of the time, it’s silly, really).

In other words, leverage in your account to get the dough rolling!

Just don’t end like this…

For all of these, the forex spot market beats or equals many other markets for traders to do their thing.

Trading the equivalent of trillions of American dollars per day, its liquidity is unheard of.

The forex spot market would be the biggest of the biggest dinosaurs ever to have trotted the Earth.

Not that it will become extinct anytime soon though.

With its global scale, it’s hard to manipulate prices for too long.

Puppets UNLEASHED!

Not even Central Banks, which print their respective currencies can screw things up for too long (There was a Bank which got broke by speculators some time ago, but I won’t say which one it was, right, Bank of England?)

And because of the scale, opportunities abound almost every day (good opportunities, that is).

With the high liquidity, broker spreads are relatively low.

You get volatility, but not too much of it.

And you can leverage a shit-ton of money with most brokers for your trades.

Oh, and you can open a forex spot market account with pennies…

It’s all rainbows and sunshine baby. Rainbows and sunshine.

Oh, I forgot to say it runs pretty much 24 hours a day, so no matter where you live, you can get in on the fun too!

Why NOT Trade the Forex Spot Market

Honestly, I cannot think of a single strong reason not to trade the forex spot market.

Maybe that’s why it’s so popular.

However, human beings can be very different.

And more importantly, human beings can have very different circumstances.

What do I mean by that, and how is this relevant?

Well, not everyone sits down to think “Gee, I feel like trading for a living now, let’s see which market is best (overall) for me to start in”

Noup.

Most likely you got involved in a trading shop with a specific type of asset or market.

Maybe you’ve always been fascinated with the mythical stock market.

Perhaps you dad had a rice farm and your knowledge led you to start trading commodity futures.

Maybe you first heard of options and learned everything about them, how to trade them, etc.

Or like me, you worked at a Central Bank and learned a lot about international finance, trade, exchange rates and such…

Who knows, maybe some men in black inducted you into secret bitcoin shorting, or something…

Welcome to THIS shop. Where we trade X, Y, and Z, but not D.

The possibilities are endless.

And as much as your background can be different, so can be your personality and preferred trading style.

On top of this all, you have current circumstances as well.

How much can you risk?

Do you have a non-trading day job?

All of this impacts your decision.

Personally, I’d go with the market and asset class you feel more affinity (read: interest) with. Especially if you’ve been exposed to it before.

Closing Remarks

My prose was somewhat deranged this time around, but it was fun!

Hope you managed to make out why the forex spot market is the best.

Screw any dissenters.

Next, I’ll go over what tier 1 data is, and what those indicators are for some of the more important economies (from a most traded currency point-of view).

If you were offended by the last line, go die somewhere. Tired of writing caveats here.

Until next we don’t-meet,

 

Emil Christopher,

The Forex Economist

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