Advantages Of Forex Trading

Advantages Of Forex Trading

Forex trading is very difference to stock or equity trading. The unreliable nature of the stock markets means that many traders are now moving to trade in the forex market. Many have seen that the advantages to trading the forex market far outweigh that of the stock or equity markets. In this article, I will go through some of the advantages of Forex Trading.

24 hours a day, 5 days a week

The forex market is in its truest sense a 24 hour market, open from Monday to Friday. The market begins by opening in Sydney, moving to Tokyo, London and finally New York. There are always traders trading the market in every minute of each session. The nature of the forex market means that traders can react to breaking news and place their trades accordingly.

Electronic Communication Networks or ECN’s are relatively new products which have revolutionised the after hours of trading. Although many of these ECN’s have ill liquidity and are badly managed meaning that there is no guarantee that any trade that you place will be executed, there are some which are regulated and provide a trustworthy and reliable service to traders.

Liquidity – A matter of trillions

The forex market is larger than the stock market, although many people who don’t trade find this fact hard to believe. A survey carried out by the Bank for International Settlements (BIS) in 2007 found that the average daily trading volume for the Forex market reached $3.2 trillion dollars, marking an all-time high at that point for the forex market, this can be compared to another survey in 2004 which saw $1.9 trillion trade, an increase of 71%!

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This sharp increase can be attributed to retail investors using the many forex brokers that are now available online. To put it in perspective this amount is more than all of the world’s stock markets put together! Such quantity ensures that price remain fairly stable and so ensures the liquidity of the forex market, making it easy for forex traders to open or close their positions.

Bulls or bears? Why not be both?

The stock market often refers to the decline of a stock as a bear market and a rising market as a bull. These terms do not exactly exist within the forex market in the truest sense of their meaning. Forex traders can make a profit in a rising or falling market regardless of how major economies are performing as the rates are continually fluctuating.

The simple things….

As the forex market does not have the many thousands of choices that the stock market has as many major currencies are not traded on the forex market. This means that forex traders learn the predictable movements of the currency pairs that they trade and gain a better understanding of price movement and patterns

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Start small, aim high

With the popularity of the forex market increasing amongst retail investors it is now possible to open a forex trading account with less than $300. Some brokers may accept a lesser amount but I would recommend reading our Top 10 Forex Brokers article for the best of these that we have found. As the forex market is leveraged it is possible to turn this amount into thousands of pounds, however it is also possibly to lose it if you don’t have the right forex trading strategy.

It is still possible to get 100:1 leverage from some online Forex brokers which greatly exceeds the 2:1 margin which is commonly offered by equity brokers. This increased leverage allows forex traders to maximise the potential profit of each trade that they place. Though again a forex trader would do well to remember that leverage will greatly increase their potential losses as well. The need for an effective money management strategy to minimise the risks is a must for any professional forex trader.

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Try before you buy

Almost exclusively unique to the forex market is a feature of most trading platform called a demo account. This demo account will allow you to trade any strategy you wish, ensuring you are confident about what you are doing before you place any money on the line. This demo account will allow you to place ‘real time’ trades at exact markets price which will ensure you will have a chance to gain experience in the forex market before opening a real account

These are only some of the reasons why traders are moving in droves to the forex market. Some stay, some do not, it is those who do the research who last the longest.

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