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Why Foreign Currencies?
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With over $3 trillion traded daily, foreign currency exchange dealing (or Forex or "FX") is the largest of all financial markets. In fact, the daily global turnover is more than ten times the amount of the world's equity markets. |
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Despite these impressive numbers, currencies as an asset class and investment vehicle are relatively unknown to most private investors. Still, while the vast majority have no idea of what they may be missing, savvy investors are discovering the many excellent opportunities available through Forex. Here are some of the most notable: |
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Forex diversifies traditional investment portfolios, which are usually made-up of equity and fixed income securities. The factors that drive Forex valuations are typically different than those influencing other asset classes, giving Forex market participants the potential for a more balanced overall portfolio performance. These factors include economic conditions, political conditions and balance of trade between countries. |
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Forex tends to move on the international economic climate and perceived strength of an individual country's economy. Technically speaking, this can create market volatility and, due to a wide selection of currencies and a growing group of global market participants, it is not uncommon to find multiple buying and selling opportunities nearly every trading day. |
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Being the largest global market, Forex is highly liquid. Investor accounts are
held in either open or closed currency positions and can quickly be converted to
cash. Requests for withdrawal of funds can be facilitated within one or two days
and without any penalties. |
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Forex trades virtually 24-hours a day, 5.5-days per week, providing rapid executions around the clock; there is no waiting for the market to “open” as with the stock, bond and commodity markets. This allows traders to initiate, terminate, adjust or balance positions effectively and maximize trading opportunities. |
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Forex provides market participants with the optimal use of leverage, enabling traders to take positions commensurate with market opportunity, account size, investor risk tolerance and established investment parameters. It is important to understand that without proper risk management, the high leverage available with many brokers can lead to large gains as well as losses. At ICO, we not only recognize this, but do our best to maintain safeguards against the negative consequences of high leverage (please feel free to ask us for an in depth explanation). |
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Forex investors can access account information in real time, 24-hours per day, via the internet |
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Under certain conditions, Internal Revenue Code provides Forex investors with tax advantages. For example, Section 1256 allows investors to have 60% of net gains treated as long-term capital gains and the other 40% treated as ordinary income; this election is available regardless of how long a transaction takes to complete. Because the maximum tax rate on capital gains is now 15%, if an investor is in the highest individual income tax bracket (35%), the blended effective tax rate on Forex gains is 23%.
For a comprehensive explanation regarding every advantage and
to ensure one makes the correct elections, we suggest investors
consult with their accountant or tax advisor. Additionally, trading
in the foreign exchange market involves considerable risk. Therefore,
before deciding to participate in Foreign Exchange trading,
you should carefully consider your investment objectives, level of
experience and risk appetite. Most importantly, do not invest
money you cannot afford to lose. Any mention of past performance
is not indicative of future results |
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