The 4 Elements Of Any Good Trading Market

The foreign exchange market (forex market or fx market) is the world's largest market and consists largely of the forex spot market (spot foreign exchange market) and the currency futures market. Today however the majority of smaller traders tend to confine themselves to trading spot forex.

There are four elements which must be present in any good financial market, whether you are trading in the stock, bond, futures, currency market or any other market. These four elements are liquidity, transparency, low trading costs and market trends.

Liquidity

There are always two sides to a trade, a purchase and a sale, and in its simplest form liquidity refers to the ease with which traders can buy and sell. To be truly liquid traders must also be able to trade in substantial volume without this having any marked effect on prices.

If a market lacks liquidity then traders will often encounter delays in meeting orders to buy, frequently leading to a significant variation between the price when an order is placed and when it is executed. In addition, it may be hard to sell in a market that is not sufficiently liquid.

Fortunately the currency exchange market (especially when trading in major world currencies such as the USD and GBP) is extremely liquid and a huge number of trades are conducted each day on the Forex money market with a trading volume that far exceeds that of other markets.

Transparency

A market is said to possess transparency when traders can access accurate information at all stages of the trading process.

Information is the key to many things in life and the world's various markets are no exception. There are many examples, especially in the world stock markets, of companies and individuals which have run into difficulty because the parties to a trade did not have access to accurate information.

The foreign currency exchange market is without doubt the world's most transparent market and this is especially true when it comes to pricing.

Low Trading Costs

Markets carry trading costs which inevitably lower a trader's profits or increase his losses. However, when a market can keep its trading costs low it becomes attractive to traders and encourages both an increased number of trades and an greater trading volume.

The absence of commission and other usual trading costs, together with the tight spread of prices, in currency trading mean that trading costs in the Forex market are kept very low.

Market Trends

In many markets it can be difficult to know just when to enter the market and when to exit it (when to 'buy' and when to 'sell'). As a result, it is important to have some way of assessing the present state of a market and to predict its future direction.

In the foreign currency exchange market this is achieved by employing various forms of technical analysis which examine the past performance of the market and identify trends which can then be used to predict its future.

Most markets display trends of one form or another, but in some markets these are far more clearly defined than in others, making it far easier for traders to enter and exit the market. The foreign currency market displays a particularly strong trending characteristic.

Recommended books from

Getting Started in Currency Trading: Winning in Today's Forex Market (Getting...
by Michael D. Archer
Amazon Price: $13.57
 

The Quarters Theory: The Revolutionary New Foreign Currencies Trading Method ...
by Ilian Yotov
Amazon Price: $53.55
Customer Review: Ilian Yotov's Quarters Theory is an indispensible roadmap for successfully navigating the seemingly erratic moves and random chaos of the foreign exchange currency market. The Quarters Theory is an unmatched trading methodology that is literally unavailable anywhere else.

Ilian's years of expertise and insight has resulted in a guideb...
 

Sentiment in the Forex Market: Indicators and Strategies To Profit from Crowd...
by Jamie Saettele
Amazon Price: $47.67
Customer Review: I am a long time reader of DailyFX site and find it very useful.
One tool that caught my attention some time ago was the COT report column, write by Jamie Saettele.
The book goes further in explain the COT report itself, how to generate indicators from COT data, how to interpret it and, finally, how to use it as a tool to help trigger t...
 

WORLD FOREX: UK Pound Hits 5-Month High In Unsettled Trading - Wall Street Jo...
30 Jul 2010 at 12:31pm

Moneycontrol.com
WORLD FOREX: UK Pound Hits 5-Month High In Unsettled Trading
Wall Street Journal
"I still think the market is getting increasingly concerned with the health of the US economy," said Butler at Scotia Capital. US yields slumped again after ...
FOREX-Dollar under pressure vs yen before US GDPReuters
FOREX-Dollar falls to 8-month low vs ...
 
Euro Forecast to Gain versus US Dollar - Daily FX
30 Jul 2010 at 3:47pm

IBTimes Hong Kong
Euro Forecast to Gain versus US Dollar
Daily FX
Request SSI data on our forex forum. Choppy US dollar price action has led to mixed Forex trading crowd sentiment, moderating our conviction in calling for ...
Loonie Locked In Tepid Tango With GreenbackForbes (blog)
Market News by Forex-MetalForex Hound
Daily Foreign Exchange Market Su...
 
WORLD FOREX: Dollar Up Vs Euro, Down Vs Yen After US GDP Report - Wall Street...
30 Jul 2010 at 3:51pm

WORLD FOREX: Dollar Up Vs Euro, Down Vs Yen After US GDP Report
Wall Street Journal
The UK pound scrambled to a five-month high Friday, bolstered by buying against the euro in unsettled market conditions. Thin summer trading exaggerated ...

and more »