I’m a currency trader because of one thing: the volatility.
I love the action. I love the wild swings. I love the opportunities that come with it all.
And all of that comes from volatility.
My friend Tim Sykes loves penny stocks for the same reason. That’s just what traders do. We’re two sides of the same coin.
So, anyway, the forex market is volatile. It’s also the biggest in the world, and here’s why…
Because everything costs money.
It’s that simple. Everything – and I mean everything – comes with a price tag. You want to buy milk from New Zealand? You want to buy rocks from Australia? You want to buy oil from Canada? You want to buy cars from China? You need those countries’ currencies to do it.
The list goes on…
Swiss chocolate? You need Swiss francs.
American stocks? You need U.S. dollars.
European stocks? You need euros.
All of that is to say that the currency market is the largest tradeable market in the world because it’s functional.
You don’t pay for Swiss chocolate with Swiss stocks. You buy everything in the world with money.
It’s the reason gold’s also still so attractive – it’s the backstop on fiat currencies. There’s a government behind every promissory note, and there’s a company behind every stock, but neither of those things are intrinsically valuable without gold backing it all up. For centuries, gold wasn’t the thing behind the money; it was the money.
Dollars, pounds, francs… whatever. It all has value in the current system.
And to put that in perspective, according to the CIA’s World Factbook, the Global World Product – aka the total size of the world economy — was around US $78.28 trillion in nominal terms and totaled approximately 107.5 trillion international dollars in terms of purchasing power parity.
Per capita, that’s about $17,300 for every man, woman and child on the planet.
The point of this whole conversation is that this market is so massive because everyone, whether they know it or not, is a participant. If I go to Vietnam and change a US dollar into Vietnamese dong at the airport, or somebody wants to buy a European stock and they transfer their dollars into euros in order to do it… we’re all contributing to this market.
And that’s the fun part.
Also, while we’re here, there are three types of currency traders you should be aware of. Wonder which one you are? Check out the three different types to find out.