Through the years, you’ve probably seen the stock market grow in size. It’s grown in the number of participants and also in its trading volumes as investors have become more active in their trading through the years.
For instance, I remember back in the 1980s, there weren’t a whole lot of regular people investing much in the stock market. They still viewed it as a “rich man’s game.”
But there came a day when many of the companies they worked for became public or they got introduced to stock investments through the advent of the 401(k), etc.
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Today, the regular guy on Main Street is much more inclined to have some skin in the “stock market game.”
Well, if someone believes that the stock market will continue to grow in the number of people participating in it and the volume that they trade, then they could have done something like buying the New York Stock Exchange’s stock (NYX).
As the market volumes grow, and therefore the exchange’s profits too, the stock holders would benefit.
The same thing has happened in the commodities market too. If you believe that more companies will hedge their commodity risks and if you believe that more individuals will invest in things like gold or oil contracts, then you’re likely a believer in the Chicago Mercantile Exchange doing well over time as its earnings increase.
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Therefore the person that is inclined to believe in the expansion of the trading volumes, and thus profits for this commodities exchange, will likely invest in the Chicago Mercantile Exchange (CME).
Well, in the same way there is a way to take advantage of your overall belief in the growth of the currency market.
If you believe that companies are “going global” more all the time and establishing international operations and making purchases or acquisitions overseas, then you’re a believer in the currency market volumes continuing to expand if for no other reason than this.
However, you and I also know that more and more individuals are also getting involved in the currency market because Americans are trying to fend off the steep slide that’s going on in the U.S. dollar over the long-term. More and more Americans are awakening to this fact…but really, it’s still just in its infancy stages, even at this point.
But if you believe that the currency market will continue to grow in its volume due to all or any of the reasons above, then you’re a believer that those that make markets in the currency market will continue to expand their volumes as a result of the overall market expanding due to increasing demand.
This means that these currency market makers (also known as forex market makers) will continue to grow and blossom out. If you’re a believer in that concept then you’re likely a believer in the forex market makers that have gone public in the last year such as Forex Capital Markets (FXCM) or Gain Capital (GCAP).
So just as you’ve seen these other “more mature” markets expand such as stocks and commodities, I believe you will see the currency market continue to expand as companies “go global” more all the time.
They’ll make acquisitions. They’ll have international mergers. They’ll have foreign employees that will need to be paid in their home currency, etc. They will need to buy equipment from different places in the world to continue to business. All of these types of things cause a need for one currency to be sold and another currency to be bought (or exchanged).
In the same way, more individuals and hedge funds are delving more into this market all the time. Sometimes it’s to hedge a business need but many times it’s to speculate on their views as to where a currency exchange rate is going.
Just like a person may have a view on where a stock is going due to what’s going on in its company, they can buy or short that company as a result.
Well, in the same way, you may have an opinion about how a country is doing relative to another. If so, that opinion can be capitalized upon by making a trade in the forex market. More and more people are beginning to do that. As they are doing it, it’s expanding the volume in the retail forex market. That’s where FXCM and Gain Capital come into play.
They cater to individual forex investors/traders and hedge funds. If you believe that this niche of the forex market will continue to grow, you can take advantage of that growth over time by investing in their stocks.
This is just one more way to express a view on the forex market, by investing in the market makers themselves through buying their stocks.
So if you’re a stock investor that believes in the future growth of the forex market but you don’t know that much about the actual trading of currencies yourself, you might start by checking into these currency market makers and see if you feel that they are worthy of investment.
About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust.
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