It was decided to trade forex because it is one of the most practical and best markets to start in the trading business. The first advantage of forex is that one does not need too
much initial capital to start trading. After this project is finished, there is a big chance that the members of the team may want to put to practice and apply all the knowledge and skills acquired in this IQP to manage personal funds. Taking into account the fact that the members of this project are college students, there may not be a lot of personal investment capital available to start trading, so forex is a good fit. As it was previously explained in the forex market description, in forex one can use leverage up to 50:1. For example if one wants to invest $1,000 of one’s own money, leverage could be used to invest up to $50,000 worth of currency pairs. However, it is important to take into account that using leverage may magnify your profits, but at the same time it magnifies losses and risk. That is the main reason why for this project leverage will not be used; however, after the project is finished and the group has more knowledge, understanding, and experience in the forex market, leverage could be used to manage one’s personal funds.
Another attractive of the forex market is the fact that it is the largest, most liquid market in the world, with an average traded volume of more than $1.9 trillion per day127. This is attractive because a market with high liquidity is more secure to trade in the sense that most certainly, whenever one wants to enter or exit a position, this can be done easily because there is enough liquidity in the market. On the other hand, trading in markets with low liquidity may become a problem to traders facing no movement in prices, or not being able to either buy or sell their positions due to a lack of liquidity.
Finally, one last factor that led to the decision to choose forex instead of any other financial
instrument is the fact that forex is related to almost everything happening around the different countries in the world, specifically in the ones of the currency pairs that are being traded. For instance, if one trades stocks, one needs to be informed about important factors of a company such as their next release of a product, their financial statements, their legal problems, and any other factors that may influence a change in their stock price. However, to trade forex one needs a much more globalized scope of the economy and be aware of what is going on in the countries in which one is trading their currency, plus other countries that might also affect a change in this currency’s strength. For instance, to trade forex one needs to perform a thorough research of the economic conditions of the two countries of the currency pair. To find information about the economic strength of a certain country it is important to be aware of current events happening such as elections, fiscal changes, and domestic and foreign problems, as well as indicators. Some important indicators of the strength of a country’s economy are unemployment rate, interest rates, GDP growth, debt, and balance of trade. It was decided that it was more interesting to invest all the time required for this project on something that would give one a better
understanding of the global economy rather than a better understanding on the performance of certain firms. With this said so, it was decided to trade forex for this Interactive Qualifying Project.