There are certain Forex trading advantages which are very clear on your eyes. But there are also some other advantages of Forex trading that you may get to realize gradually after starting to trade.
No matter what type of trader you are, you will definitely find that trading the Forex market has some advantages over other financial markets. Some of the most important advantages are: Liquidity, market opened 24 hours, high leverage, low trading costs, small Investment, specialized operation and trading from anywhere.
As you have already learned about Forex Trading Hours, you know that The Forex market remains open 24 hours a day. No matter its 6pm or 6am, somewhere in the world, there are buyers and sellers who are constantly negotiating currency. Market traders of FOREX can always react immediately to the minute of news; and, unlike the stock market, gains and losses are not affected by earnings reports announced after the market closed, conference calls with analysts, and falls in the level of operations due to “pending news” or announcements.
Forex Trading Advantages
Here are the Advantages of Forex Trading:
1. Increased liquidity
Forex Market trading volume is 50 times bigger than the volume traded in New York Stock Exchange. There are always brokers and traders willing to buy or sell currencies in the Forex markets. The liquidity of the exchange market, especially the market of major currencies, helps ensure price stability. Traders can almost always open or close a position at a fair market price. This represents a major advantage of the currency market.
There is high risk of liquidity for traders who are trading in stock or futures because of the low trading volume. These investors are also vulnerable to other risk factors, resulting in a higher spread or variations of prices, in response to any relatively large transaction.
2. High Leverage in the Forex market
Suppose you get Leverage 1: 500 from a Forex Broker, it means that if you have an account with $1,000 actually you’d be speculating like you have $500,000. This means we can earn money as if we have deposited $500,000, but if we lose, the loss would be limited to $1000 that we have invested in the beginning.
In later part of this course, we have explained precisely everything related to leverage. Learn What is leverage in Forex.
3. Invest with minimal risk
The Forex market requires less capital risk than other markets. Some brokers allow opening accounts with $1 (yes, you read that right, just one dollar). On average, the minimum investment is usually $100-$300. Of course, we cannot expect to make a fortune from that capital, but definitely we can serve to enter the Forex market without risking large amounts of money.
4. Specialized operations
Market liquidity allows us to specialize ourselves in only a few currency trading. About 85% of transactions occur in the seven major currencies. This allows us to follow in detail the economic news that will help us predict the evolution of the markets.
5. Low transaction costs
The Forex market is considered one of the financial markets with lower operating costs. Most brokers charge based upon the following two schemes:
The brokers charge a different price for buy and sale transactions, this difference is that the broker’s spread. Learn what is spread in forex trading?
Spread and Commissions
Most brokers in this scheme charge a commission, but usually the spread is very small, so even transaction costs may be lower than the brokers who charge only spread.
6. Profit potential in both bull and bear markets
In every open Forex position, an investor has a long position in one currency and short the other (Later we will explicate in depth about getting long or short in one currency). A short position is one in which the trader sells currency before it depreciates. In this case, the investor benefits from a fall in the market price.
7. Trading from anywhere
The fact that the transactions have no physical place where all happen, we can make transactions anywhere in the world. We just need an Internet connection where we can access the broker
Forex trading Advantages over Trading in Other Markets
The Forex market offers many advantages that stock market or any other forms of investment opportunity cannot provide you. In Forex markets, commercial considerations have nothing to do, it’s the financial reasons that compel the execution of a Forex deal. Also as compared to stock markets, exchange markets do not operate out of any specific building.
In Forex trading, it is not mandatory for you to buy a currency to sell it later but it is enough to open buy/sell position for any currency without actually possessing it, unlike stock trading where you are committed to have the full face value of the stock before you can trade for that amount of stock.
Giant size of the market doesn’t mean Forex markets are not volatile at all! There can be volatile situations at times, it offers an advantage over a declining stock market, in that with proper knowledge of Forex markets you could still key into profitable trades. On the contrary, people tend to avoid stock markets when it is in a downward spiral as no one really knows when it would start on an upward trend. In other words Forex trades can be made even if the markets were rising or falling.
Forex market is easier to be monitored. Because of the limited number of currencies traded in Forex markets, it is easier to monitor market trends that relate to those currencies, whereas in the stock market a lot of factors could affect individual stocks, not to mention the innumerable number of stocks (there are several thousand stocks registered in most stock exchanges) that would have to be monitored at any given point in time.
Forex market has its own trends and cycles punctuated by high volatility, forex markets donate fit into the traditional Bull/ Bear market cycle typical of stock trading. That is because currency rates always throw in new intriguing ways of making profit. For example, interest rates do not adversely affect currency markets as it would stock market indices and stocks in general. When interest rates go up, that country’s currency gets strengthened (giving profitable opportunities to the discerning trader) whereas it would depress stock markets in that country and probably cause losses to a stock trader having several open positions.
The Bottom Line: Forex trading Advantages
We believe that you learned about so many advantages of Forex trading, but here is a thing you should have a closer look: Forex trading advantages may vary from broker to broker. So, Choosing Forex broker smarty is absolutely necessary.
Forex trading advantages knew no bounds. To be honest, reading a 1200 word article is not enough to understand all the Forex Trading advantages. You get to understand it more while you start real Forex trading or at least start demo trading by Opening Demo Trading Account.
|Chapter 1||Introduction to Forex Trading|
|Lesson 1||online Forex trading|
|Lesson 2||Forex Market Overview|
|Lesson 3||Forex Market Participants|
|Lesson 4||Forex Trading Hours|
|Lesson 5||Forex trading advantages|
Go back to Main Page: Forex Trading for Beginners