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Chapter 1. The Truly Modern Market > Opportunity Is Knocking

Opportunity Is Knocking

Forex is an investing opportunity, one that can bring an investor profit or loss, provide a hedge for a portfolio, and be a source of critically important information—especially in a global investing environment where growth opportunities in the future will mostly be outside the U.S.

Forex is a volatile market intensified by leverage. Money is made (or lost) when investment values fluctuate. Although a market that moves up and down like a roller coaster can be nerve-wracking, it also offers more trading opportunities. Consider how the value of the dollar index changed between January 2002 and February 2004. The Australian dollar rose nearly 50 percent, the Euro almost 40 percent, the Swiss franc more than 30 percent, the British pound sterling 24 percent, the yen 22 percent, and the South Korean won more than 10 percent, according to The Economist (Feb. 9, 2004) (see Figure 1.3).

Figure 1.3. The Dollar Index is a weighted basket of G7 currencies used by traders to gauge relative strength.


Even if two currencies are not moving much against each other, investors can take advantage of small fluctuations through leverage. Compared to the wild tech days of the 1990s, trading a one-penny move wouldn't get anyone excited. But retail Forex is based on the power of leverage. This means that an investor can take a position with a small amount of money—say, $1,000—and leverage it into a position worth $100,000. This can be great when the markets move in a direction that benefits the original position, but losses pile up quickly when it does not.

An additional advantage of trading on Forex is that it offers investors invaluable education and experience—a “gateway” into the world of international investing. The oil shocks of the 1970s and the international economic crises of the 1990s taught many Americans that the U.S., even with its giant and diverse economy, depends as much on the global economy as the world depends on it. Combined with the weakening of the dollar's global dominance, high speculative returns from emerging markets, and the general sideways movement in the U.S. markets, savvy traders have expanded their search for investments. Any investor who does not have this perspective will miss opportunities. Taking part in the Forex market exposes an investor to the economic developments occurring around the world. With real money at stake, the investor will understand how political, social, and economic forces in other countries translate into profits or losses in the U.S. Thus, Forex offers not just portfolio exposure, but exposure for the investing mind. Over the next 50 years, most of the world's explosive economic growth is expected to take place outside the U.S. The Forex investor will be a part of it; the investor who stays home won't be. The new trading vernacular will be composed of terms such as bund, SET, and yuan.

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