There are many benefits and advantages of trading forex. Here are just a few reasons why so
many people are choosing this market. If you learn the forex business and if
you can do it successfully then you can earn lot of money from forex business.
No commissions:
No clearing
fees, no exchange fees, no government fees, no brokerage fees. Most
retail brokers are compensated for their services through something called the "bid-ask
spread".
No middlemen:
Spot currency trading eliminates the middlemen and allows
you to trade directly with the market responsible for the pricing on a
particular currency pair.
No fixed lot size
In the futures markets, lot or contract sizes are determined
by the exchanges. A standard-size contract for silver futures is 5,000 ounces.
In spot forex, you determine your own lot, or position size. This allows traders to participate with
accounts as small as $25 (although we'll explain later why a $25 account is a
bad idea).
Low transaction costs
The retail
transaction cost (the bid/ask spread) is typically less than 0.1% under normal
market conditions. At larger dealers, the spread could be as low as
0.07%. Of course this depends on your leverage and all will be explained later.
A 24-hour market:
There is no
waiting for the opening bell. From the Monday morning opening in Australia to
the afternoon close in New York, the forex market never sleeps. This is awesome
for those who want to trade on a part-time basis, because you can choose when
you want to trade: morning, noon, night, during breakfast, or in your sleep.
No one can corner the market
The foreign exchange market is so huge and has so many
participants that no single entity (not even a central bank or
the mighty Chuck Norris himself) can control the market price for an extended
period of time.
Leverage:
In forex
trading, a small deposit can control a much larger total contract value. Leverage gives
the trader the ability to make nice profits, and at the same time keep risk
capital to a minimum.
For example, a forex broker may offer 50-to-1 leverage,
which means that a $50 dollar margin deposit would enable a trader to buy or
sell $2,500 worth of currencies. Similarly, with $500 dollars, one could trade
with $25,000 dollars and so on. While this is all gravy, let's remember that
leverage is a double-edged sword. Without proper risk management, this high
degree of leverage can lead to large losses as well as gains.
High Liquidity:
Because the
forex market is so enormous, it is also extremely liquid. This means
that under normal market conditions, with a click of a mouse you can
instantaneously buy and sell at will as there will usually be someone in the
market willing to take the other side of your trade. You are never
"stuck" in a trade. You can even set your online trading platform to automatically
close your position once your desired profit level (a limit order) has been
reached, and/or close a trade if a trade is going against you (a stop loss
order).
Low Barriers to Entry:
You would
think that getting started as a currency trader would cost a ton of money. The
fact is, when compared to trading stocks, options or futures, it doesn't. Online
forex brokers offer "mini" and "micro" trading accounts,
some with a minimum account deposit of $25.
We're not saying you should open an account with the bare
minimum, but it does make forex trading much more accessible to the average
individual who doesn't have a lot of start-up trading capital.
Free Stuff Everywhere!
Most online forex brokers offer "demo" accounts to
practice trading and build your skills, along with real-time forex news and
charting services.
And guess what?! They're all free!
Demo accounts are very valuable resources for those who are
"financially hampered" and would like to hone their trading skills
with "play money" before opening a live trading account and risking
real money.
Now that you know the advantages of the forex market, see
how it compares with the stock market!
