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One of the unique features of the foreign exchange market is its extreme liquidity. Because forex is a worldwide market, it can be extremely active at any time of the day, with price quotes changing constantly. As one market closes, another is opening. For example, at the end of a day in the U.S, trading begins in Tokyo and Hong Kong.
Exchange rates, which represent the basis of the foreign exchange market, can be influenced by a great variety of factors. Hence, more opportunity for speculation exists on this market than any other.
Foreign exchange trading does not take place on a regulated exchange, making it different from other trading such as that of stocks, futures or options. Trading is not controlled by any governing body, members trade with each other based upon credit agreements, which are in effect metaphorical handshakes.
This arrangement works well because participants in foreign exchange trading must both compete and co-operate with each other. Self regulation has proved to be a very effective way of controlling the market.
In the stock market, factors such as insider trading and revision in earnings only come to light after the market has reacted. In foreign exchange trading, this is not the case as significant information affecting a particular currency becomes known to everyone in the trade immediately. Hence, insider trading does not exist. This transparency lends itself to a more fair and equitable market.
Forex provides the opportunity to trade with leverage, hence higher profit or loss. In the stock market, you could use margin to achieve a leverage of 2:1. In forex trading, much higher leverage margins of up to 100:1 are available.
Forex trading is a purely speculative affair, with no physical exchange of currencies.
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How is forex trading different from other markets?
