There are many benefits and advantages of trading forex. Here
are just a few reasons why so many people are choosing this market:
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 is an advantage because it 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).
#forex #trading
