Forex:
Benefits of Trading the Forex Market
by: Raul
Lopez Trading the Forex market has
become very popular in the last years. Why is
it that traders around the world see the Forex
market as an investment opportunity? We will try
to answer this question in this article. Also
we will discuss come differences between the Forex
market, the stocks market and the futures market.
Some of the benefits of trading the Forex market
are:
Superior liquidity.
Liquidity is what really makes the Forex market
different from other markets. The Forex market
is by far the most liquid financial market in
the world with nearly 2 trillion dollars traded
everyday. This ensures price stability and better
trade execution. Allowing traders to open and
close transactions with ease. Also such a tremendous
volume makes it hard to manipulate the market
in an extended manner.
24hr Market.
This one is also one of the greatest advantages
of trading Forex. It is an around the click market,
the market opens on Sunday at 3:00 pm EST when
New Zealand begins operations, and closes on Friday
at 5:00 pm EST when San Francisco terminates operations.
There are transactions in practically every time
zone, allowing active traders to choose at what
time to trade.
Leverage trading.
Trading the Forex Market offers a greater buying
power than many other markets. Some Forex brokers
offer leverage up to 400:1, allowing traders to
have only 0.25% in margin of the total investment.
For instance, a trader using 100:1 means that
to have a US$100,000 position, only US$1,000 are
needed on margin to be able to open that position.
Low Transaction costs.
Almost all brokers offer commission free trading.
The only cost traders incur in any transaction
is the spread (difference between the buy and
sell price of each currency pair). This spread
could be as low as 1 pip (the minimum increment
in any currency pair) in some pairs.
Low minimum investment.
The Forex market requires less capital to start
trading than any other markets. The initial investment
could go as low as $300 USD, depending on leverage
offered by the broker. This is a great advantage
since Forex traders are able to keep their risk
investment to the lowest level.
Specialized trading.
The liquidity of the market allows us to focus
on just a few instruments (or currency pairs)
as our main investments (85% of all trading transactions
are made on the seven major currencies). Allowing
us to monitor, and at the end get to know each
instrument better.
Trading from anywhere.
If you do a lot of traveling, you can trade from
anywhere in the world just having an internet
connection.
Some of the most important differences between
the Forex market and other markets are explained
below.
Forex market vs. Equity markets
Liquidity
FX market: Near two trillion dollars of daily
volume.
Equity market: Around 200 billion on a daily
basis.
Trading hours
FX market: 24hr market, 5.5 days a week.
Equity market: Monday through Friday from 8:30
EST to 5:00 EST.
Profit potential
FX market: In both, rising and falling markets.
Equity market: Most traders/investor profit only
from rising markets.
Transaction costs
FX market: Commission free and tight spreads.
Equity market: High Commissions and transaction
fees.
Buying power
FX market: Leverage up to 400:1.
Equity market: Leverage from 2:1 to 4:1.
Specialization
FX market: most volume (85%) is made on major
currencies (USD, EUR, JPY, GBP, CHF, CAD and AUD.)
Equity market: More than 40,000 stocks to choose
from.
Forex market vs. Futures market
Liquidity
FX Market: Near two trillion dollars of daily
volume.
Futures market: Around 400 billion dollars on
a daily basis.
Transaction costs
FX market: Commission free and tight spreads.
Futures market: High commissions fees.
Margin
FX market: Fixed rate of margin on every position.
Futures market: Different levels of margin on
overnight positions than day time positions.
Trade execution
FX market: Instantaneous execution.
Futures market: Inconsistent execution.
All this makes the Forex market very attractive
to investors and traders. But I need to make something
clear, although the benefits of trading the Forex
market are notorious; it is still difficult to
make a successful career trading the Forex market.
It requires a lot of education, discipline, commitment
and patience, as any other market. |
